MY REPLY TO SOME RECENT FEEDBACK -- ANOTHER LOOK AT GROUP LEADERS INCLUDING INTERNET AND TELECOM HOLDERS -- FINANCIALS AND RETAILERS STILL LOOK WEAK -- BIOTECH AND HIGH TECH STOCKS PUSH NASDAQ 100 TOWARD NEW 2007 HIGH

PLEASE DON'T TAKE THINGS OUT OF CONTEXT... I always enjoy reading the "feedback" comments that I receive from my Market Messages. While they're not always complimentary, they do raise valid questions that I try to address in subsequent messages. In some instances, however, the comments misinterpret or misrepresent what I've said and when I've said it. One reader commented this week that my showing the ProFunds Falling Dollar Fund last Thursday was a contrarian indication that it was a good time to buy the dollar. That reader ignored the fact that I had shown that same fund on April 2006 and July 2007. I was simply showing it again to let our newer readers know that such a fund existed. Anyone who has been reading my comments over the last year should know that I've been pretty consistently bearish on the dollar and bullish on gold and other commodities. Another reader questioned my "recommendation" to sell bear funds last Thursday. [Actually, it wasn't a "recommendation" but a response to a question]. The reader suggested that a better time to sell a bear fund would have been on September 4. In response to that I'd like to point out that an August 31 message headlined "Earlier Monthly Sell Signal Has Been Erased" included the comment that "most of our short-term indicators have switched from negative to positive". That message also discussed the improvement in the weekly MACD lines which (although negative) were narrowing. The message pointed out that "traders often take that as reason to cover short positions". Analysis of bear funds isn't done separately from market analysis. An August 31 suggestion to "cover short positions" is the same as suggesting "selling a bear fund". I didn't first suggest doing that last Thursday. Judging from much of the feedback I receive, it seems that some of our readers aren't aware of the fact that virtually everything I write about has been covered at some point in the past. Newer readers can correct that by reading my archived market messages. In my current Market Messages, I often refer back to previous articles on the same topic. Some of our readers also take a current Message as a new "recommendation". Usually it's not new. And it's hardly ever a "recommendation". I'm constantly updating my views on a broad range of markets. I try to bring emerging trends to your attention and do some educating along the away. I leave it up to you do do further research on those comments and decide whether or not you wish to take any action. Stockcharts provides you with plenty of tools to do that. My views aren't always right, but I try to make them as clear as possible.

BEST AND WORST GROUPS SINCE JULY... One of the reasons that we spend so much time writing about market groups is because it's important to be in the right parts of the stock market. The market, for example, has risen over the last couple of months. Some groups have risen faster however. And some groups haven't risen at all. Some groups that we've been highlighting over the last couple of months have been gold, energy, biotechs, telecom, and Internet. Chart 1 shows why. It plots those groups relative to the S&P 500 since the start of July. [The S&P 500 is plotted as the flat black line]. You'll see that the five groups mentioned above have risen faster than the S&P over the last three months. A lot of the commodity-related strength is due to the weaker dollar. Biotechs and Internet stocks have helped put the Nasdaq into a leadership role (more on that later). Telecom has risen because of its defensive qualities. Chart 2, however, shows market groups that have lagged far behind the S&P 500. They include homebuilders, banks, brokers, and retailers. Whatever message that may hold for the broader market, one point is clear. It's usually better to stay with market leaders and avoid market laggards.

Chart 1

Chart 2

INTERNET HOLDERS HIT NEW NEW ... On September 4, I wrote about the uptrend developing in Internet stocks. That was shortly after the Internet Holders cleared their 50-day moving average. Chart 3 shows the HHH having hit a new 52-week high since then. Its relative strength line has also hit a new high. Individual breakouts have taken place in Amazon.com and EBAY. Although Yahoo has been a group laggard, it's one of todays strongest stocks (Chart 4).

Chart 3

Chart 4

TELECOM HOLDERS ALSO BREAKOUT... I've written several bullish articles on the telecom group, the most recent one being on September 17. Chart 5 shows the Telecom Holders having also hit a new 52-week high since then with a rising relative strength line. The two biggest stocks in the TTH - AT&T and Verizon -- have hit 52-week highs. Quest has been a telecom laggard. Chart 6 shows the stock starting to move higher as well on improving relative strength.

Chart 5

Chart 6

FINANCIALS STILL IN DOWNTREND... One of the factors that sparked the recent market rally was buying in financial stocks. When the Fed lowered rates half a point last Tuesday, the Financials SPDR (XLF) soared through its 50-day moving average which turned its trend from "down" to "sideways". Unfortunately, the rally has stalled at some major resistance barriers. Chart 7 shows the XLF backing off from resistance at its mid-August peak near 35. It also remains below its 200-day moving average. Its relative strength ratio (bottom of chart) has started to weaken as well. Since financials are generally viewed as market leaders, their inability to break through resistance is a warning not to get too optimistic about recent market developments.

Chart 7

RETAILERS GAP DOWN ... The recent bounce in retailers also appears to have ended. Chart 8 shows Retail Holders gapping down 2% today to put them back below their moving average lines. More importantly, the group's relative strength ratio has fallen to a new 52-week low. Home Depot is the Dow's biggest loser today (Wal Mart is the second worst). Chart 9 shows HD falling more than 2%. Other big retail losers are Lowes, Nordstrom, and Macy's. If things are so much better after last week's Fed easing, how come retail stocks are falling?

Chart 8

Chart 9

NASDAQ 100 TOUCHES NEW 2007 HIGH ... Another theme we've been writing about is the strong performance by the Nasdaq 100. That trend of market leadership is continuing. Chart 10 shows the Nasdaq 100 on the verge of reaching a new six-year high. Its relative strength line has already hit a new high versus the S&P 500. Several large cap techs have hit new highs over the last week including Apple, Google, and Oracle. Two of today's NDX leaders come from the high tech and biotech groups. Chart 11 shows Cisco on the verge of another six-year high. Chart 12 shows Gilead Sciences climbing to a new three-month high. With the market having moved into a more neutral zone, my advice would be to favor those groups (and/or individual stocks) that are showing upside leadership. That's not a new idea. Buying market leaders is a principle of sound investing that I write about constantly. Nor are the charts of current leaders new. We've shown most them several times over the past couple of months.

Chart 10

Chart 11

Chart 12