S&P 500 BOUNCES OFF SUPPORT -- NASDAQ 100 HITS NEW HIGH -- INTERNET STOCKS SURGE WHILE CHIPS FALL -- MERCK BREAKS OUT WHILE WAL MART FALLS

S&P 500 SPDRS BOUNCE OFF 149 SUPPORT... Last Friday I wrote that the first important line of defense for the S&P 500 SPDRs was 149. I got that number from the early August peak and the 50-day moving average. Chart 1 shows that Monday's upside reversal took place right at that support level and the market gained more ground on Tuesday. The ability of that support level to hold has kept the August/October uptrend intact. Tuesday's top gainer was the Nasdaq 100 which broke out to a new six-year high (Chart 2). A lot of the buying there came from the likes of Apple, Amazon.com, and RIMM. Technology remains a market leader. Gold made back some lost ground today. Big gains in airlines and rails gave the transportation sector a nice boost. Retailers and semiconductors, however, had another bad day. Merck was the Dow's strongest stock and helped make healthcare one of the day's strongest groups.

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MERCK BREAKS OUT -- WAL MART FALLS ... Two trends are reflected in the next two charts. One is the upside breakout in Merck which puts the stock at the highest level in five years. That reflects more optimism in the healthcare sector. Wal-Mart lost nearly 3% and was the day's weakest Dow component. That reflects continuing weakness in retail stocks. We see two disparate trends in the technology sector as well.

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INTERNET RISES WHILE SOX FALLS ... The next two charts show why it's so important to look beneath the surface of any market sector and to be able to tell what's been going up and what hasn't. Chart 7 shows the IIX Internet Index soaring 2.5% today and helping lead the Nasdaq higher. Its relative strength line (top of chart) has hit a new high. By contrast, Chart 8 shows the Semiconductor (SOX) Index losing more ground today. Its relative strength line (bottom of chart) has been falling since mid-July. The SOX remains below its 200-day moving average as well. It's always a good idea to stay with leaders and avoid laggards. That's true of market sectors, industry groups, and individual stocks.

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