Healthcare, Utilities, and Consumer Staples led the market higher earlier in the year. Technology was a sector that had lagged all year, but with its latest strength it is a very encouraging sign that the market could go higher.
The Head and Shoulders formation in the tech sector, which I viewed as a potentially bearish pattern, is now negated because we broke through $71.00 on the PowerShares QQQ Trust (QQQ).
The $71.00 level will now act as the new support area. Indeed, the charts are now saying that new strength in technology can fuel the advance higher.
Apple (AAPL), the top holding in the Nasdaq Composite Index, was under heavy selling pressure but stopped falling after making a low of $385. Apple is now trading above resistance at $450.
Its MACD is also rising solidly after building a base since November. If Apple can break above $470, the old March high, it would definitively penetrate a trendline that had been a resistance level at the time AAPL stock began its latest leg down in late March.
A break above this level would represent the start of a new uptrend with an upside objective of $550. This development would excite the technology bulls; maybe enough so that the institutions portfolio managers will again want to own it, propelling the stock higher.
Support levels continue to hold such as $153 on the S&P 500 SPDR (SPY). The small-cap iShares Russell 2000 Index ETF (IWM) has held $90.00, and traded above resistance at $95 -- a good sign.
Technology is a leader, no longer a laggard. Even though favorable seasonality has passed I give the market the benefit of the doubt unless something very unexpected happens to spook the bulls.
Market leadership appears to be changing away from the defensive areas such as Health, Staples, and Utilities. Nasdaq is the new leader of the market which bodes well for the stock market historically.
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