DOW HITS ANOTER NEW RECORD -- NASDAQ SURGES OFF 50-DAY -- THREE BIG TECHS TAKE THE LEAD -- SOX STILL TRENDING LOWER - BONDS SURGE -- US DOLLAR INDEX BREAKS SUPPORT
GENTLE BEN SPARKS THE DOW... Today's Market Message was written by Arthur Hill. John Murphy will be back tomorrow. - Editor
Comments from Fed Chairman Ben Bernanke sparked a rally on Wall Street and the Dow surged to another record high on Wednesday. The Fed Chairman indicated that inflationary pressures were under control and the economy should continue modest growth. Led by the big banks, the Dow moved above 12700 and recorded yet another new all time high. The price chart shows a series of higher highs and higher lows since early November and the Dow continues to hold above its 50-day moving average. There are no signs of weakness and the 50-day is the first support level to watch for signs of trouble.
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NASDAQ PLAYS CATCHUP ... The Nasdaq also moved sharply higher on Valentine's Day. Even so, the index is still below its January high and has been lagging behind the Dow, S&P 500 and Russell 2000 over the last few weeks. The latter three are all trading above their January highs. Today's move by the Nasdaq is a good start and follow through above the January high would be bullish for the overall market. On the price chart, the Nasdaq has been battling the 50-day moving average since late December and the index is making another effort to break free of its gravitation pull. I am basing key support on the late January lows and I believe the bulls are in good shape as long as these lows hold.
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A NEW NASDAQ TRIOKA EMERGES... Applied Materials (AMAT), Qualcom (QCOM) and Yahoo! (YHOO) were big winners on Wednesday and these three paced the Nasdaq. In addition, all three were on the most active list and this is a sign that large-cap tech stocks are perking up. Well, maybe not all large-cap tech stocks, but at least these three. Yahoo! moved above its August high and has been strong all year (2007). Qualcom broke above its 200-day moving average with good volume. Applied Materials gapped up off support with above average volume.
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THE SOX IS ALSO ON THE MOVE ... As noted above, Applied Materials surged and the semiconductor equipment stocks followed suit. This led to a surge in the Semiconductor Index ($SOX), but this key index remains in a falling price channel and short of a breakout. As John Murphy pointed out last Friday, weakness in the SOX has been weighing on the Nasdaq and the Nasdaq needs participation from this key group. On the price chart, the SOX has been trending lower since early December and I drew a falling price channel. The trendlines are internal trendlines because they cut through the January high and low. Look for a move above 480 for a channel breakout and a signal that the SOX is back.
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BONDS SURGE AND RATES FALL... Fed Chairman Bernanke indicated that the Fed was comfortable with the current level of interest rates and this triggered a strong rally in bonds. The 10-year T-Note Yield ($TNX) fell back below 4.8% and there is now a big resistance zone from 4.8% to 4.9% (48-49 on the chart). This resistance zone is confirmed by the 200-day moving average. As rates moved lower, the iShares ~20-year T-Bond Fund (TLT) moved back above 88 and is poised to challenge its 50-day moving average. The bond ETF broke channel resistance with a surge in early February and follow through above the 50-day would be quite positive.
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FALLING RATES WEIGH ON THE DOLLAR... The fall in interest rates triggered a chain reaction in the inter-market area. The US Dollar Index fell sharply, the Euro Currency Trust (FXE) rose sharply and the StreetTracks Gold ETF (GLD) extended its gains. The US Dollar Index had been range bound since early January and today's move broke range support. This reinforces resistance around 85.5. The Euro Currency Trust (FXE) surged above its late January high and broke above its 50-day moving average. The StreetTracks Gold ETF (GLD) has been moving higher since early January and tacked on another 53 cents.
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