TECHS POWER THE MARKET -- QQQQ HOLDS GAP -- BROKEN SUPPORTS TURN INTO RESISTANCE LEVELS -- SOFTWARE HOLDRS SURGE -- ORACLE AND MICROSOFT LEAD SOFTWARE -- CONSUMER DISCRETIONARY STILL LAGGING

BIG TECHS PUSH MARKET HIGHER... Today's Market Message was written by Arthur Hill. John Murphy will return tomorrow. - Editor

The Nasdaq 100 ETF (QQQQ) led the market higher on Wednesday. On Chart 1, we can see that the surge above 51 is keeping last week's gap in place. This gap is considered a breakaway gap that is bullish as long as it holds. The gap has held for a week now and this affirms support around 50-50.5, which is the gap zone. A close below 50 would fill the gap and call for a reevaluation of last week's breakout.

Chart 1

Even though the gap is holding, QQQQ is running into resistance from broken support. In fact, a number of key ETFs are running into resistance from broken support levels. This is a basic tenet of technical analysis: broken support turns into resistance. After breaking support at 52, QQQQ was turned back at this level last Friday. In addition, the 50-day moving average confirms support around 52. This looks like a make-or-break area for QQQQ. That elusive follow through surge is needed to open the door to the October highs.

KEY ETFS HITTING RESISTANCE... Let's run through some of the other major index ETFs that are meeting resistance from broken support levels. On Chart 2, The Dow Industrials ETF (DIA) broke support at 134 and this area turned into resistance over the last four days. On Chart 3, the S&P 400 Midcap ETF (MDY) broke support around 158 and this area turned into resistance over the last four days. Also notice that the 50-day and 200-day moving averages marked support in mid October and both now mark resistance. On Chart 4, the S&P 1500 ETF (ISI) broke support around 132 and this area turned into resistance over the last four days. Also notice that the moving averages are turning into resistance around 132-134. All three of these ETFs surged last week with big moves. That's a great start. Now we need to see some follow through with resistance breakouts. This is what separates sustained advances from oversold bounces.

Chart 2

Chart 3

Chart 4

SOFTWARE SURGE... Microsoft (MSFT) and Oracle (ORCL) powered the Software HOLDRS (SWH) above resistance today (Chart 5). After a sharp decline in November, the ETF reversed around the 200-day moving average last week (yellow oval). Last week, SWH met resistance at 43 from the mid November highs. Today's surge broke this resistance level and SWH is challenging its 50-day now.

Chart 5

MIRCOSOFT AND ORACLE LEAD SOFTWARE GROUP... Charts 6 and 7 show Microsoft and Oracle leading the way higher. Microsoft (~23.6%) is the largest component in the Software HOLDRS and Oracle (~11.7%) is the second largest component. Together, they make up over 35% of this ETF. Microsoft surged with a big gap in late October and then corrected back to the 50-day moving average with a falling wedge. The stock broke wedge resistance with today's surge.

Chart 6

Oracle plunged to the big support zone in early November. The stock then firmed by bouncing off the 200-day moving average a number of times. Today's surge solidified support around 19-19.5 and broke resistance around 21.

Chart 7

DON'T FORGET BMC... Before moving from software, I would like to highlight one more software stock. BMC Software (BMC) hit a new high in early November, but fell back with the rest of the market later that month. BMC found support near the 200-day moving average and the October lows around 31. With today's surge, the stock is trading back above the early November resistance break. BMC showed good relative strength in early November and the stock is showing good relative strength again in early December.

Chart 8

CONSUMER DISCRETIONARY STILL WEIGHING... Despite decent gains in the major indices, the Consumer Discretionary SPDR (XLY) closed down on the day. This sector features retail companies, restaurants, auto manufacturers, cable providers and home-builders. The ETF was weighed down by Comcast (CMCSA), which dropped over 10% after an earnings warning today (Chart 9).

Chart 9

As Chart 10 shows, XLY has been relatively weak lately, but managed to surge with the rest of the market last week. XLY met resistance just above 35 and I will be watching for follow through above this level to lift the broader market. Chart 11 shows the short-term picture with the 60-minute chart. XLY surged above 35 with two gaps and then corrected over the last three days. This gentle decline forged a falling wedge or flag. These are potentially bullish consolidations that require confirmation with a breakout. Look for XLY to surge above wedge resistance to signal a continuation of last week's rally. It looks like a lot is riding on the market's reaction to Friday's employment report.

Chart 10

Chart 11