TECHNOLOGY ETFS TEST NOVEMBER HIGHS -- ALTHOUGH BIG TECHS LEAD RALLY, EQUAL WEIGHT ETF SHOWS STRENGTH -- SEMICONDUCTOR ETF AT SIX-MONTH HIGH -- INTEL AND NVIDIA ARE CHIP LEADERS -- STRONG DOLLAR MAY HELP AIRLINES BY MAKING INTL TRAVEL CHEAPER
TECHNOLOGY STOCKS CONTINUE TO LEAD THE MARKET HIGHER... It's usually a good sign when the economically-sensitive technology sector is leading the market higher. And it is. Chart 1 shows the Technology Sector SPDR (XLK) in the process of testing its November high. Its relative strength ratio (above chart) is already in new high ground. Technology strength is helping to drive the Nasdaq market higher, and large stocks in particular. That's good for the Nasdaq 100, which is comprised of the largest 100 non-financial stocks in the Nasdaq universe. Chart 2 shows the QQQ also testing its November high. Since the start of 2015, the Nasdaq 100 has gained 11% versus an 8% rise in the Nasdaq Composite and 2% for the S&P 500. There are two messages there. First, technology is a market leader. And second, that large stocks are driving the technology rally. That's not necessarily a bad thing. But it has raised concerns that the Nasdaq rally is too narrow.
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Chart 1
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Chart 2
NASDAQ UNWEIGHTED INDEX PLAYS CATCHUP ... The Nasdaq 100 Trust (QQQ) is a market weighted ETF. It gives greater weight to larger stocks like Apple (12%), Microsoft (8%), Amazon (6%), Google (5%), Facebook (4%), and Intel (3%). Of those six stocks, four of them have recently hit new highs. Chart 3 compares the performance of the First Trust Nasdaq 100 Equal Weighted ETF (black line) to the cap-weighted QQQ (gray line). It's clear that the market cap version is stronger. The good news, however, is that the equal weight version isn't that far behind. The QQEW has climbed above its 200-day average and is challenging its November high. A close above that barrier would put the QQEW is position to challenge its 2015 high. The QQEW/SPX ratio (top of chart) shows that even the equal weight version of the QQQ is starting to outperform the S&P 500. [Technology accounts for 56% of the Nasdaq 100 versus much smaller weightings of 20% and 14% for consumer discretionary and healtchare stocks].
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Chart 3
SEMICONDUCTORS TURN UP... Another positive sign for technology is the upturn in semiconductors. Chart 4 shows the PHLX Semiconductor iShares (SOXX) at a six month high. Its relative strength ratio (top of chart) has been rising since August. Its biggest stock is helping to lead it higher. The daily bars in Chart 5 show Intel (INTC) trading at the highest level in ten months. Its relative strength ratio (top of chart) is rising as well. Several other chip stocks are rising as well. The weekly bars in Chart 6 show NVIDIA trading at the highest level since 2007. Its 14-week RSI line (top of chart) shows the stock to be overextended. But iT appears to be in a strong uptrend.
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Chart 4
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Chart 5
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Chart 6
DOES A STRONG DOLLAR HELP AIRLINES... Chart 7 shows the Dow Jones Airlines Index ($DJUSAR) having a strong day after bouncing off its 200-day average. Its relative strength line (above chart) has been rising since midyear. Part of that strength is coming from lower energy costs. The gray matter in Chart 7 shows the July takeoff in airlines coinciding with a collapse in the price of oil. Another oil downturn in October pushed airlines higher. A stronger dollar may also be helping airlines. That's mainly because a stronger dollar usually pushes oil lower. But there may be another reason why a strong dollar helps airlines. A stronger dollar makes it cheaper for Americans to travel abroad. Chart 8 shows a close correlation between the Dollar Index and the Airlines Index over the last ten years. In fact, their 10-year correlation is a strong +0.86%. A lot of that is because the dollar is also negative correlated to oil, and airlines and crude oil have a negative correlation of -0.89%. But it makes sense that a stronger dollar could also serve to boost international travel. That idea may be put to the test with the U.S. dollar close to 12-year high.
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Chart 7
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Chart 8
S&P 500 EQUAL WEIGHT ETF TRIES TO STAY ABOVE 200-DAY LINE... The daily bars in Chart 9 show the S&P 500 SPDRs (SPY) meeting some resistance along its November high, but still well above its moving average lines. Its daily MACD lines (below chart) still haven't turned positive. Chart 10 shows the Guggenheim S&P 500 Equal Weight ETF (RSP) struggling to stay above its 200-day line. As with the Nasdaq market, the equal weighted ETF is lagging behind its market cap version. It's better for the market when both ETFs are safely above their 200-day lines.
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Chart 9
