MARKET RALLY CONTINUES AS NASDAQ TESTS ITS 200-DAY AVERAGE -- FINANCIALS LEAD TODAY'S GAINS -- DRUGS HELP BOOST HEALTHCARE SECTOR -- HOME DEPOT, UNITED TECHNOLOGIES, AND TRAVELERS ARE DOW LEADERS -- SEMICONDUCTORS SHOW NEW LEADERSHIP
NASDAQ MAY BE THE THIRD MAJOR STOCK INDEX TO CROSS ITS RED LINE ... Charts 1 and 2 show the Dow Industrials and S&P 500 building on their gains after rising above their 200-day averages (red lines). Both now appear headed for a test of their early December peaks. Chart 3 shows the Nasdaq Composite Index in the process of testing its red line and its December high at 7486. A close above both barriers would be a positive sign for the Nasdaq and would strengthen the market's uptrend. All eleven sectors are in the black today. Financials, energy, healthcare, and industrials are leading the day's advance with gains of 1% or more. Small caps are also showing more leadership. That may be due to recent strength in the dollar which usually favors smaller stocks. Banks are leading today's gains in the financial sector.
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Chart 1
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Chart 2
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Chart 3
BANKS LEAD FINANCIALS HIGHER ... Financial stocks have lagged behind the rest of the market over the past month. Today, however, they're leading the market higher. The black daily bars in Chart 4 show the Financial Sector SPDR (XLF) nearing a test of its 200-day average. It's the day's strongest sector. Its relative strength ratio (blue line) shows it leading the market higher today for the first time in a month. Chart 5 shows the KBW Bank Index ($BKX) gaining more than 2% today to lead financials higher. Its relative strength ratio (blue line) is also showing signs of rebounding.
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Chart 4
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Chart 5
DRUGS HELP BOOST HEALTHCARE SECTOR... The black bars in Chart 6 show the Health Care SPDR (XLV) reaching the highest level in two months and trading well above its 200-day average (red line). Pharmaceuticals are one of the reasons why. The green bars in Chart 6 show the Pharmaceutical Index ($DRG) rallying along with the XLV. Pharma is usually viewed as defensive in nature, as is the healthcare sector in general. But both groups show strong chart patterns.
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Chart 6
SOME DOW LEADERS ... Three of today's Dow leaders are crossing above their 200-day lines. Chart 7 shows Home Depot (HD) crossing its red line to the upside. Chart 8 shows United Technologies (UTX) doing the same. Chart 9 shows Travelers (TRV) clearing its 200-day line earlier in the week. TRV is part of the insurance group which is also helping boost the financial sector.
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Chart 7
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Chart 8
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Chart 9
SEMICONDUCTOR ISHARES CONTINUE TO LEAD ... Semiconductor stocks have assumed a new leadership role. Chart 10 shows the PHLX Semiconductor iShares (SOXX) climbing to the highest level in four months after clearing its 200-day average earlier in the month. It appears to be on pace to challeng its fourth quarter highs. The rising SOXX/SPX ratio in the upper box shows the group helping to lead the market higher. That's also giving more support to the technology sector.
