FINANCIAL SHARES RECOVER FROM EARLY SELLOFF WHILE SOX INDEX HITS 52-WEEK HIGH -- THOSE TWO FACTORS KEPT S&P 500 OVER ITS 50-DAY AVERAGE -- NASDAQ SHOWS NEW UPSIDE LEADERSHIP

FINANCIALS REBOUND ON STRONG VOLUME ... An early selloff in financial stocks today turned into a positive day after all. Chart 1 shows the Financials Sector SPDR (XLF) closing higher. More importantly, volume was unsually heavy. That upside reversal day also kept the XLF above its 200-day moving average. The rebound in financial stocks relieved some early market selling and helped the market end the day in the plus column. The market also took encouragement from a 3% jump in semiconductor stocks. [See earlier message]. Chart 2 shows the Semiconductor (SOX) Index closing at a new 52-week high. Chip buying helped make the Nasdaq 100's 1% gain the day's strongest market index. Technology leadership is usually a good sign for the market. The rebound in financial shares, combined with the upside breakout in the SOX, kept the S&P 500 above its 50-day moving average.

Chart 1

Chart 2

S&P 500 BOUNCES OFF 50-DAY LINE ... The S&P 500 survived a test of its own today. Chart 3 shows it bouncing off its 50-day moving average. That m.a. has acted as a support line since the start of April. The short-term uptrend will remain intact as long as the S&P 500 stays above that support line. One minor concern at the moment is the lack of upside momentum. The black line below Chart 3 is a 12-day Rate of Change (ROC). It monitors short-term market momentum. Market upmoves usually occur after the ROC moves back above the zero line (as it did in mid-March). At the moment, the ROC is in negative territory. The market advance will have a much better chance of continuing if and when the ROC moves back over the zero line.

Chart 3

NASDAQ 100 SHOWS NEW LEADERSHIP ... Earlier today I showed the Nasdaq 100/S&P ratio turning up. Chart 4 is a point & figure version of the same chart. The QQQQ:SPX ratio has trended sideways since last December. Notice that the last x column has exceeded the previous x column for the first time since last October. Chart 5 is a line version of the QQQQ/SPX ratio. The QQQQ has been underperforming the S&P since the start of 2006. Notice that the ratio has hit a new six-month high and has also broken an eighteen-month down trendline. That suggests that technology may finally be a better place to be. That's especially true of semiconductors which are leading the tech rally.

Chart 4

Chart 5