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March 06, 2006
Resolution of the Range
Is it any wonder that the major indices are on a road to nowhere? The chart above shows the Consumer Discretionary SPDR (XLY) and is 2+ week trading range. There have been a number of fits and starts, but no break either way. This is the most economically sensitive sector and XLY also has a high correlation to the S&P 500. Therefore, the S&P 500 is unlikely to move higher unless this key sector breaks resistance.
There are three groups dragging their feet within the Nasdaq. The Internet HOLDRS (HHH) led the way down until early February and then moved into a consolidation pattern the last few weeks. While the Nasdaq moved slightly higher the last few weeks, HHH remains range bound and needs to break 61 to revive the bulls.
It’s been a right awful mess for the Semiconductor HOLDRS (SMH). AMD is pulling the group higher and INTC is dragging the group lower. Given the carnage in Intel the last two months, this ETF is actually holding up quite well. Nevertheless, it has yet to break resistance and end the five week trading range. A small pennant or flag formed over the last two days and a move above 39 would be most bullish.
The Software HOLDRS (SWH) makes up the last piece of the going nowhere puzzle. This ETF surged at the end of January, but failed to hold these gains and moved into a trading range. It has been one flat pancake the last four weeks. Watch 37.6 up and 36.5 down.
These are the four to watch for signs of strength or weakness in the S&P 500 and Nasdaq. The Nasdaq has been pulled higher by the Networking iShares (IGN) lately and could use a little help from its friends. Should two of the Nasdaq groups break resistance, this would be most bullish and also give a lift to the S&P 500.
Posted by Arthur B. Hill at March 6, 2006 09:56 AM