Divergences Getting Wider. Here’s What I Mean

  • March 7, 2005
  • Gary Kaltbaum

I would like to say things have changed…but they
really haven’t. I know. The DOW and S&P broke out to new highs out of a 10
week base. How can you not know? Besides Martha, that’s all I have been
hearing.

My take is simple. The good stocks and sectors are
getting better and the poor stocks and sectors continue to go no place fast.
Before I get into the sectors, please keep in mind, under the surface of
everyone talking about 3-4 year highs, the S&P is up less than 1% this year
and the NASDAQ is down 5%. I will get into the NASDAQ/NASDAQ 100 in a second.

OILS, STEEL, COAL, ORES, HOUSING, INDUSTRIALS, ENERGY
and UTILITIES continue to extend their gains. There are not many bases to buy
off of as most are extended.  The good news is that RETAILERS started popping
this past week…adding another area to the good side of the ledger. All these
areas should be looked at on pullbacks. It was also a help on Friday that the
FINANCIALS finally bounced. 

That said, the divergence between those areas and
the NASDAQ/NASDAQ 100 continue to get wider.

^next^

The amazing thing about this is
that this is exactly the opposite of what happened into 99-00. Back then, the
market was led by TECH, INTERNET, BIOTECH. Back then, INDUSTRIALS were left for
dead.  Now, INTERNETS continue to croak. YHOO trades below its 200 day
average
and EBAY has gapped down in a big way. They have refused to budge after their
recent drubbing. BIOTECHS have been whacked on the poor news out of BIOGEN. But
hey, that counts. BIG-CAP TECH remains in hibernation. Just a few years back,
all you had to own was CSCO, MSFT, ORCL and SUNW…not anymore. Lastly,
SEMICONDUCTORS  are now starting to act somewhat suspect as many pulled back
on a pick up in volume.

    

The SEMIS have NOT broken down. IF SEMIS have topped,
the NASDAQ will not have a chance. In fact, the NASDAQ and NASDAQ 100 have not
even been able to move above their 50 day averages or their first line of
resistance. How long can this divergence last? As long as it wants.  In order
for things to get better, the NASDAQ will need to break above 2104 and the
lagging NDX above 1562.

Gary Kaltbaum