A TALE OF TWO MARKETS -- TECH SPDR CHALLENGES RESISTANCE -- INTEL LEADS SEMICONDUCTORS -- ALCOA SURGES ON BIG VOLUME -- THE RUSSELL 2000 IS STILL LAGGING
NASDAQ LEADS THE WAY... It has been a tale of two markets in 2007. The Nasdaq has been working its way higher this year, but the NYSE Composite has been working its way lower. Even though we are only talking six trading days, something is happening here and we should take notice. The Nasdaq has been slowly moving higher since 26-Dec and exceeded last week's high today. In contrast, the NYSE Composite peaked at around 10 AM on 3-Jan and declined the last six days. While relative weakness in the NYSE Composite is a concern, relative strength in the Nasdaq is positive and this shows us where the buying is concentrated.
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XLK CHALLENGES RESISTANCE... The Information Technology SPDR (XLK) represents the technology stocks within the S&P 500. Some of the top holdings include Microsoft, Cisco, AT&T, IBM, Intel, Apple Inc and Google. Chart 3 shows that XLK is on the verge of breaking resistance. The ETF surged above 23.75 in late November and then consolidated the last 6-7 weeks. This consolidation looks like a flag and a break above flag resistance would signal a continuation of the uptrend. Notice that XLK briefly broke its 50-day moving average in late December and then quickly recovered. This recovery reinforces support at 23 and the bulls are in good shape as long as this support level holds.
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INTEL LEADS THE SEMIS... The Semiconductor Index ($SOX) led the Nasdaq higher on Wednesday and this is a boon for the Technology sector. The SOX kept pace with the Nasdaq from mid July to late November, but then stumbled in December. While the Nasdaq held its ground and traded flat in December, the SOX declined and showed relative weakness. The early days of January tell a different story though and the SOX is keeping pace with the Nasdaq once again. Within the Semiconductor group, Intel is leading the way higher with a surge back above the 50-day moving average -- on good volume to boot. Applied Materials (AMAT) is also showing leadership with a break above its December high.
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ALCOA GAPS OFF SUPPORT... Alcoa reported good earnings on Tuesday night and this triggered a high volume advance on Wednesday. The stock was hit rather hard from late December to early January when it declined below 28.5. The move broke the 50-day moving average, but the stock found support near broken resistance. The gap and high volume advance reinforce support around 28. The second chart shows a long-term perspective. Alcoa broke falling wedge resistance with a surge in November and today's move keeps that move alive. The next hurdle is resistance from the December high.
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SMALL-CAPS DRAGGING THEIR FEET... The picture in technology is looking pretty good, but small-caps are lagging and this is a concern. The Russell 2000 broke below its late December low and 50-day moving average last week. Even though the index managed to firm over the last three days, it has not been able to recoup last week's losses and climb back above the 50-day. Relative weakness in small-caps shows a market that is not firing on all cylinders and we should keep an eye on this down the road.
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