THE NASDAQ 100 IS LEADING THE MARKET HIGHER -- SO IS THE TECHNOLOGY SECTOR -- THE S&P 600 SMALL CAP INDEX IS BREAKING OUT TO A NEW RECORD -- THE RUSSELL 2000 ISN'T FAR BEHIND -- THAT'S PULLING LARGE CAPS HIGHER
NASDAQ 100 AND TECHNOLOGY SECTOR ACHIEVE BULLISH BREAKOUTS ... The technical picture for the stock market continues to improve on a lot of fronts. One of them is this week's upside breakout in Nasdaq market. Chart 1 shows the PowerShares Nasdaq 100 (QQQ) climbing above its mid-April high to reach the highest level in two months. Its relative strength line (top box) is rising as well and nearing a new record. Most of those gains are being driven by rising technology shares. Chart 2 shows the Technology Sector SPDR (XLK) also achieving an upside breakout this week. Its relative strength line (versus the S&P 500) has already reached a new record high. The tech rally is being led by Internet and semiconductor stocks. Chart 3 shows the Dow Jones US Internet Index trading at a two month (led by Alphabet and Facebook). Chart 4 shows the Dow Jones US Semiconductor Index also rising above its April high. Technology leadership is a good sign for the rest of the market. And the market is responding to that leadership in a positive fashion,
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Chart 1
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Chart 2
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Chart 3
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Chart 4
S&P 600 SMALL CAP INDEX BREAKS OUT TO A NEW HIGH ... Yesterday's message showed the S&P 600 Small Cap Index ($SML) nearing the top of a bullish "ascending triangle". Chart 5 shows the SML hitting a new record high today. That's a very bullish breakout. Chart 6 shows the Russell 2000 Small Cap Index (RUT) rising above its upper trendline drawn over its March/April highs (see circle). A close above that trendline would signal that the RUT has resolved its three-month triangle on the upside. It's normal for the SML to lead the RUT higher during an uptrend and reach a new high first. That's because the SML is made up of a smaller number of more highly rated small cap stocks. And as usually happens, upside breakouts by small caps is pulling large cap stocks up with them. And they're achieving bullish breakouts of their own.
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Chart 5
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Chart 6
S&P 500 LOOKS TO BE COMPLETING FIVE WAVE TRIANGLE ... You may recall my weekend message explaining that "triangles" usually form five waves, which include three pullbacks. And that last week's pullback looked like the third one. Chart 7 is the same chart used to make that earlier point. The five numerals mark the five waves that formed since late January on the S&P 500. I placed a question mark after wave 5 since the pattern had yet to be resolved on the upside. It may be time to remove that (?) after today's strong price action. Chart 8 shows the S&P 500 rising today above the falling trendline drawn over its March/April highs (see circle). It's also trading above its mid-April intra-day peak at 2717. That suggests that the triangular consolidation that has lasted more than three months is finally resolving itself to the upside, which is what triangles usually do. And right on schedule.
Chart 7
