Securities Research Services

Monday, January 08, 2007

Tech Sector Points Higher

Rally disbelievers were screaming distribution on Friday as the S&P pulled back, but should we worry? Let's check the facts.

The QQQQ rallied last week and money flow on the index broke out confirming a rotation into this sector. In the past, the broad market has always followed higher a few days after the QQQQ has led the way. This time may be different, but it probably won't be.

Likewise, let's put Friday's S&P pullback into perspective. As you can see below, the SPY is merely pulling down to its rising 50-day average. If it touches down on this average this week, it will be the first time it has done so since it broke above on August 15. This has been a strong trend and strong trends find defense at their 50-day average as the pullback crowd eagerly awaits a high probability buy. Also note that the SPY broke out above its weekly resistance line in November. This line now provides a high degree of support.

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