First let me apologize for last week’s lack of a report. We had a baby that arrived a couple of weeks early. It was an adopted first child for my oldest daughter and it was my second grandchild. The new baby is named Harvey Creed Nielson and he is doing great.

In the meantime, major stock indices are still plodding along in a mostly sideways pattern. In the past I have mentioned that when it comes to making investment decisions, the primary factor I look for is a long-term trend. But a short-term view is a helpful tool in trying to identify what the market is likely to do next. Take a look at the chart below, for example.

What you see is a comparison of the Nasdaq (black line) and the Dow (gold line) over the past three months. The Dow peaked early in June and has been unable to exceed that high in the weeks since then. The Nasdaq, on the other hand, has twice exceeded that early June mark and a couple of days ago reached a new, multi-year high.

Over the past two-plus years, the Dow outperformed the Nasdaq by a few percentage points. But recently the Nasdaq has been gaining ground. That is significant because from a historical perspective,  investors make their biggest gains when the Nasdaq is dominant over the blue chip indices. While it is far too early to declare that the Nasdaq and the tech sector are stepping back into a long-term leadership role, it is one step in the right direction.

For the past three months, energy remains the strongest sector, followed by Latin America, and select large cap funds. But the technology funds have been rising and some have produced double-digit returns during that period. For example, IAH, an Internet ETF, is up 14.4% over the past three months. PTF, PowerShares Dynamic Technology, is up 11.68% for the same time. XLK, Technology Select Sector SPDR is up 11.28%.

This surge in tech funds is a move worth watching. If this sector can gain and maintain a leadership role for several months, it should produce a great opportunity for investors to make sizeable gains.
F.S.

This entry was posted on Thursday, July 5th, 2007 at 2:35 pm and is filed under Newsletter. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.