WILSHIRE 5000 HITS NEW RECORD -- S&P 500 WILL BE THE NEXT TO TEST ITS 2000 HIGH -- TRANSPORTATION STOCKS HELP PUSH INDUSTRIAL SPDR TO NEW RECORD -- SOX INDEX SURVIVES RETEST OF BULLISH BREAKOUT LEVEL -- QWEST JOINS VERIZON IN TELECOM BREAKOUT

QWEST JOINS VERIZON BREAKOUT ... On Monday I wrote about Verizon being on the verge of breaking out to a new five-year high. It accomplished that task on Wednesday as reported by Arthur Hill. That helped keep Telecom Holders (TTH) at the top of the leader board. Another telecom stock that has broken out is Qwest Communications. Chart 1 shows the telecom stock breaking through its September high at 9.22 yesterday on heavy volume. Its relative strength line (top of chart) has been rising since last December. That's consistent with new leadership in the telecom group. The weekly bars in Chart 2 show that yesterday's upside breakout puts Quest at the highest level in five years. Its relative strength line (solid line) is also rising.

Chart 1

Chart 2

DOW THEORY REVISITED... I recently wrote about the importance of the Dow Transports hitting a new high to confirm a record high by the Dow Industrials. That's from Dow Theory which holds that both indexes have to hit new highs to confirm a continuing bull market. I also suggested that one of the easiest ways to combine the two groups into one trade is via the Industrials Sector SPDR (XLI). That's because the XLI includes both industrial and transportation stocks. Today is a good example of that. The XLI is one of the day's top sectors. All five of the top percentage gainers are tranports -- NSC, UNP, CSX, BNI, and FDX. Chart 3 shows the XLI having already broken out to a new high. The Dow Transports in Chart 4 are jumping more than 2% today and also appear ready to challenge their highs. A new transportation high would keep Charles Dow happy.

Chart 3

Chart 4

SOX SURVIVES RETEST OF BREAKOUT POINT... Last week we showed an upside breakout in the Semiconductor (SOX) Index which broke that index out of a six month trading range. In chart work, it's important that any pullback after a bullish breakout not close below the breakout point. That's because "old resistance" along the previous peak should become "new support" below the market. The horizontal line in Chart 5 is drawn over the recent highs near 492. The SOX appears to have survived a retest of that line, which keeps its bullish breakout intact. Semiconductor Holders (SMH) have held up even better. The previous Wednesday's upside breakout in the SOX produced an "upside gap" in the SMH. A price gap below a market should provide support on any subsequent pullback. Chart 6 shows the SMH bouncing off the bottom of that "support gap" near 36.5. That's a good sign for it and the Nasdaq market. Last week's semiconductor buying helped push the Nasdaq 100 Trust (QQQQ) to a new 2007 high. Chart 7 shows the QQQQ finding new support at the old breakout point (horizontal line). That's keeping the technology rally intact.

Chart 5

Chart 6

Chart 7

WILSHIRE 5000 HITS NEW RECORD ... Back in February I pointed out that the Wilshire 5000 Index (which is the broadest measure we have of the entire stock market) was in the process of testing its 2000 peak at 14991. I remember expressing some concern that the market rally might meet some selling at that important chart barrier. It did, but only temporarily (owing primarily to sharp but brief selloff in Chinese stocks in late February). The good news is that the WLSH is now trading over 15000 for the first time in its history. That's another vote for a continuing bull market. The next major stock index to test its old high will be the S&P 500. It's not far from doing so.

Chart 8

S&P 500 NEARS TEST OF 2000 HIGH ... The S&P 500 traded over 1500 today for the first time since 2000. That puts it within 53 points (3%) of its March 2000 intra-day high at 1553. [The highest close for the S&P 500 occurred on March 24, 2000 at 1527. A second intra-day peak occurred on September 1, 2000 at 1530. That makes the 1527-1530 zone another potential resistance barrier to keep an eye on]. The S&P test of its old high will be another test for the market as a whole. A record high by the S&P 500 would leave only the Nasdaq market to accomplish that task. Since the Nasdaq is 50% below its 2000 high, it's doubtful that we'll see a new Nasdaq record anytime soon. The good news for the market, however, is that the Nasdaq is trading at the highest level in six years. At least it's moving in the right direction (Chart 10).

Chart 9

Chart 10