Hello Fellow Chart Watchers!

Another positive week for all the major averages with the Nasdaq gaining more than 5%. With positive gains in four of the last five weeks - and no sign (yet!) of the pullback we've been expecting - now is a good time to take a hard look at what's been driving these gains. Is the rally broadbased or driven by just a couple of sectors?

Long-time readers know that my favorite tool for looking at sector strength is our Interactive S&P Performance Chart. It shows the performance of the nine S&P Select Sector SPDRs over any time period you want. For the purposes of this discussion, we are using the term "Sector" in its broadest sense so that these nine sectors cover the entire market. Here's what the Sector PerfChart looks like now:

Click here for a live version of this chart

This chart shows that since the markets reopened 30 trading days ago, the rally has been driven primarily by the Cyclical and Technology sectors which are up over 12% each. Energy, Utilities and the Consumer stocks have been left out almost entirely. The Financial sector has done remarkably well considering.

Note: If you want to duplicate the chart above using the live PerfChart on our site, you'll need to click on the "S&P 500" label at the top of the chart to return the chart's baseline to zero. See the instructions link below the chart for details.

From the perspective of our Sector Rotation model (based on Sam Stovall's work), this is extremely good news. Cyclical and Technology stocks are supposed to be the key driving sectors when the economy begins to turn around. Check out the model's image below:

Click here for a live version of this chart

The names of the sectors at the top of the chart are listed in the order in which they are supposed to show strength as the economy (and thus the stock market) goes through its natural cycle. To use the model, we reverse the process. Since Cyclical and Technology stocks are doing well (and the Consumer "twins" aren't) that indicates that the economy is near the "Full Recession" part of the timeline - i.e., where I've placed the blue "Currently" box.

We said last week that if the Nasdaq breaks 2000 before the next big reversal, the primary Bear market downtrend would be broken. While it's by no means infallible, Sector Rotation analysis gives us reason to hope that we are now on our way. - Chip

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• We Set Another Traffic Record Last Week!
  The upturn in the market has led to an upturn in the number of visitors here at StockCharts which, in turn, has put a strain on our database systems and led to a slowdown in our service. The good news is that we've found and eliminated several important bottlenecks that were contributing to the problem. Hopefully (knock on wood) things will be much smoother from now on. We apologize for any inconvenience these slowdowns cause.

Did you know that Richard was the top rated analyst for MSN MoneyCentral's lastest quarter? Check it out. Congrats Richard!

Against the backdrop of declining economics, we see price action diverging from this. Remember, the markets are foward looking, and discounting mechanisms. Thus, bottoms are made in abject pessimism, and upon examination of the S&P 400 weekly chart - one can only conclude that a bottom of material proportion has been formed - for the long-term trendline was broken and prices returned to close above it. Additionally, the 150-week moving average has been successfully tested, and in combination with a turn higher of the GL Indicator from -50 - we are confident the markets will surprise on the upside.

Good luck and good trading,
Richard Rhodes

If you want more of Richard's award winning advise, check out his website: TheRhodesReport.com - Highly recommended!

IBM SURGES... IBM is traded on the big board, but was certainly one of the tech leaders this week. The chart below shows Big Blue surging to a three-month high this week -- even managing to move over its August high. The only problem is that its RSI line has moved over 70 -- making it overbought. That may suggest the need for a pullback or some consolidation. If that occurs, support should be evident near the 200-day moving average. The relative strength of IBM is symptomatic of tech leadership that's emerged over the last month. That's a good sign for the overall market -- as long as it continues.

CHIRON COILING... As part of a strong biotech group, we showed Chiron breaking out earlier in the week on strong volume. We're showing it again because its long-term pattern looks very promising. The chart below shows the stock trading within converging trendlines for the past two years -- and looks very much like a "bullish triangle". Of course, prices would have to the spring high to register a major bullish breakout. The RS line (vs. the BTK) along the bottom also shows that Chiron has been a leader in the biotech group all year. That's what we like to see -- a leading stock in a leading group. We did a bullish story on the biotech sector yesterday. The Biotech Index (BTK) closed decisively over its 200-day average today and is one of the market's standout groups.

The Question of the Week When do you update your charts? Our SharpCharts and P&F Charts are updated continually throughout each trading day. When the market is open, the rightmost bar/candle is highlighted in yellow indicating that it is still forming and could change. Our Market Carpets are also updated at 20-minute intervals throughout the trading day. Also keep in mind that all intraday information is delayed 15 to 20 minutes on our charts. The time and date in the upper right corner of the price chart panel shows you exactly when the data for the last bar on the chart was received. After the markets close, we do serveral "data dumps" from our data feed into our local databases. Most people don't realize that market data can change after the final bell as final adjustments are made. Our last data dump is usually completed by 8PM Eastern. That is when our pre-defined PerfCharts and our Stock Scan Results are updated. That is also when our Scan "Engine" - which drives the user-defined scans for Extra! users - is updated. More Information: Q: Why am I seeing outdated charts?

Here are some links that should help you get started:

• A Quick Tour of the Site



• John Murphy's 10 "Laws" of Technical Trading



• Chip's Thoughts on Getting Started with Technical Analysis



• All About Charting and Technical Analysis



• Our Mailbag Column is full of great tips and advice.



• Bored? Check out our SharpCharts Voyeur page to see recent masterpieces that other users created on StockCharts.com

Questions? Comments? Concerns? Problems? Suggestions? Simply 'r'eply to this email message and I'll see what I can do.

Take care,
   Chip

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