TECHNOLOGY SHOWS NEW MARKET LEADERSHIP -- EBAY, MICROSOFT, AND QUALCOMM GAP HIGHER -- CISCO ACHIEVES BULLISH BREAKOUTS -- NASDAQ NEARS OLD HIGHS -- BIOGEN AND AMGEN LEAD BIOTECHS HIGHER -- HEALTHCARE PROVIDERS HAVE STRONG WEEK
TECHNOLOGY SPDR SHOWS NEW LEADERSHIP... Stocks had another good week with the Dow and S&P 500 ending Friday at new records. One of the other positive developments was new upside leadership by technology which was the week's strongest sector. Chart 1 shows the Technology Sector SPDR (XLK) hitting a new record high at midweek. That strong price performance was matched by the group's "relative" strength. The XLK/SPX ratio on top of Chart 1 also exceeded its spring high to reach the highest level since April. The only thing missing was volume which remains unusually low. Technology leadership is a positive sign for the market. Internet, software, and semiconductors were among the biggest gainers in the XLK. Facebook (FB) hit a record to lead the Internet group higher. Standout performances were seen by Ebay, Microsoft, and Qualcomm. Cisco also had a breakout week.
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Chart 1
EBAY, MICROSOFT, AND QUALCOMM GAP HIGHER... Chart 2 shows eBay gapping sharply higher on Thursday and ending the week at a record high. And it did so on rising volume. Chart 3 shows Microsoft (MSFT) gapping higher on Wednesday (also in heavy trading). The software giant is close to breaking through its old highs as well. Qualcomm is still well off its old highs. But it made a up a lot of lost ground this week. Chart 4 shows Qualcomm (QCOM) gapping up to the highest level in eleven months.
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Chart 2
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Chart 3
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Chart 4
CISCO ACHIEVES BULLISH BREAKOUTS... One of the larger tech stocks that probably deserves more attention than it's getting is Cisco. It's one of the ten biggest stocks in the XLK. And it has recently achieved a couple of bullish breakouts. The daily bars in Chart 5 show Cisco (CSCO) having recently cleared several previous price peaks formed during 2015 around 29. Its relative strength ratio (top of chart) has hit a new high as well. But there's more. The monthly bars in Chart 6 show Cisco also rising above its 2007 intra-day peak at 29.54 to reach the highest level in fifteen years. Its relative strength ratio (solid gray area) shows that the stock had been an underachiever since 2010. That may no longer be the case. Its RS ratio is close a new five-year high (bottom circle). That bullish combination should start to attract some attention.
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Chart 5
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Chart 6
NASDAQ NEARS TEST OF OVERHEAD RESISTANCE... Chart 7 shows the Nasdaq Composite Index having reached a new high for the year and heading for a test of overhead resistance formed during the second half of 2015. It has to clear those highs to keep the current bull trend alive. It's already reached a potential resistance line drawn over its July/December highs. The Nasdaq/SPX ratio (top of chart) shows how badly the Nasdaq has underperformed the S&P 500 since last December. It's going to have to start doing better. Interestingly, it's not the technology sector that's holding the Nasdaq back. The technology sector is up 8% this year versus a less than 2% gain in the Nasdaq. The culprit has been biotechnology which is down -14% in 2016. That's where the real improvement needs to be seen if the Nasdaq is going to regain lost ground.
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Chart 7
BIOTECHS STILL IN BASING PATTERN ... Biotech stocks are improving, but not enough to break out of a potential basing pattern that started in February. Biotechs are a drag on the Nasdaq market. The PowerShares QQQ includes the biggest 100 non-financial stocks in the Nasdaq. Eight of the biggest stocks in the QQQ are technology stocks. Two of them are biotechs. Some of the larger biotech stocks are doing better. Biogen gained 10% this past week to make it the third biggest percentage gainer in the QQQ. Chart 9 shows Biogen (BIIB) surging above is 200-day line on rising volume. The biotech stock that looks the most promising to me, however, is Amgen.
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Chart 8
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Chart 9
AMGEN IS BREAKING OUT... Amgen may be signalling better times ahead for biotechs. That's because of its size and the fact that it's often viewed as a bellwether for the group. Amgen is the biggest stock in the Biotech iShares in Chart 8 (8%) and one of the ten biggest stocks in the QQQ. The daily bars in Chart 10 shows Amgen (AMGN) trading at the highest level in eleven months after having cleared previous peaks formed in April and December. It relative strength ratio (top of chart) has turned up as well. Amgen is also one of the largest stocks in the Healthcare SPDR (XLV) which also had a strong week.
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Chart 10
HEALTHCARE PROVIDERS LEAD SECTOR HIGHER... Chart 11 shows the Health Care Sector SPDR (XLV) trading at the highest level since last August. Its relative strength ratio (top of chart) is rising as well. Healthcare providers were the strongest part of the XLV. Chart 12 shows the U.S. Healthcare Providers iShares (IHF) reaching the highest level in ten months. This week's decision by the Justice Dept. to challenge mergers between Aetna/Humana and Anthem/Cigna was well received by investors. For the week, Cigna (CI) and Humana (HUM) jumped 10% while Anthem (ANTM) gained 6%. Centene (CNC) rose to a new 52-week high.
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Chart 11
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Chart 12
RISING DOLLAR PUSHES COMMODITIES LOWER... Growing signs of the strength in the U.S. economy helped push the U.S. Dollar Index to the highest level in four months, as shown in Chart 13. Prospects for more stimulus in Europe and Japan also contributed to dollar buying. A rising dollar normally pushes commodity prices lower, and it's doing just that. Chart 14 shows the Reuters/Jefferies CRB Index (of 19 commodities) falling to a two-month low this week. The biggest commodity losses have been in energy, agriculture, and livestock. Industrial and precious metals have also weakened, along with stocks tied to them. Falling crude oil made energy the week's biggest sector loser (-1.3%). Materials were led lower by steel, aluminum, copper, and gold shares.
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Chart 13
