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NASDAQ-100 makes new highs

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The tech-heavy NASDAQ-100 Index (NDX.X) 1,165.15 +3.10% along with its Tracking Stock (AMEX:QQQ) $28.97 +3.09% have made new multi-month highs and push above earlier months high levels after today's economic data showed new home sales for April outpacing analyst's forecasts.

A quick recap of this morning's economic data had May consumer confidence coming in at 83.8 compared to April's 81.0 reading, and slightly below economist's forecast of 84.0. Attitudes about the current economy fell, with the present situation index falling to 67.9 from 75.2. However, the consumer appeared to be holding a more positive outlook on the future as the expectations index jumped to 94.4 from 84.8.

Existing home sales for April was at a 5.84 million annual rate, which was above March's 5.53 million rate and economist's forecast of 5.7 million. The National Association of Realtors said sales of existing homes jumped 6%, the 5th strongest sales month in history. The number of existing homes on the market jumped about 10% to 2.47 million, which comes to a 5.1-month supply at the current rate of sales.

However it was the April new home sales of 1.028 billion, which was above March's 1.011 billion and economist's April forecast of 985,000 which lifted stocks from negative territory, and gave investors hope that lower mortgage interest rates were still bringing in new home buyers and would give the U.S. economy some needed lift as it continues to struggle despite a resolution on Iraq. Inside the numbers, the number of new homes coming on the market in April was unchanged at about 338,000, which comes to about a 3.9-month supply based on the current pace of sales. The median price of a new home fell about 1% year-over-year to $185,000.

With the NASDAQ-100 Index (NDX.X) and QQQ at new multi-month highs, this is the first place we would look for an extended round of short-covering as overhead supply is limited. If bears are once again uncertain that a "top" might be in place, then no- better place for momentum bulls to help along a short-covering rally to new bullish targets. Here's a quick look of my QQQ chart with WEEKLY and MONTHLY retracement brackets overlaid. Conventional retracement was dropped after the NDX/QQQ violated their December highs.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

The above chart was "captured" just moments before the QQQ broke the $29.00 level, which would violate to the upside the May 13th relative high of $28.99. I'm looking for some overly bearish bears to "call it quits" and look to cover, along with momentum bulls to try and inflict some pain on bears and have the QQQ's WEEKLY R1 of $29.33 back in play. While most indicators advise caution for bullish entries, I do think aggressive bulls are going to press the issue and will do so with a trailing stop under the $28.65 level.

Sector action today turned broadly positive with the stronger than forecasted new home sales data. While the Biotechnology Index (BTK.X) 451.27 +4.2% leads today's sector gainer list and would figure to have little to do with the underlying economy, the Semiconductor Index (SOX.X) 358.37 +4.07%, which does have greater tie to the U.S. and global economy now challenges its May highs of 360. If broken to the upside, should have in play its December 2nd high of 393.80.

All equity sector I follow are trading in the green as I write with the Dow Jones Home Construction Index (DJUSHB) 410.12 +0.01% holding a fractional gain after a torrid run higher in recent weeks to an all-time high for the index. Most likely we're seeing some profit taking on today's "better than expected" news, which obviously some market participants figure out long before.

The broader sector bullishness has the S&P 500 Index (SPX.X) 945.90 +1.35% holding near its session high of 947.70, while the narrower S&P 100 Index (OEX.X) 476 +1.37% trades instep.

The Dow Industrials (INDU) 8,732 +1.52% outperform the SPX/OEX in today's first-half of trade, with some thought given to investors making some bullish decisions over the weekend toward higher dividend paying stocks. Shares of Eastman Kodak (NYSE:EK) $31.91 +5.38% lead Dow gainers. At current levels of trade, EK boasts a 5.64% dividend yield. Shares of General Motors (NYSE:GM) $36.86 +3.69% also rise, with a current annual dividend yield of 5.8%. Both EK and GM were 2 of this year's "little dogs" for those following "Dow Dog" theory.

Jeff Bailey

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