The market had another great week, the majority of the major indexes are either breaking out to new highs, or close to doing so. The DOW Jones, S&P 500, NYSE all broke out to new highs last week. However, there is one problem, the Nasdaq and the Nasdaq 100 are severely lagging. Neither one are even close to a new high, in fact they are both teetering near support levels, and just a little nudge could push them below support.

This cannot continue, the Nasdaq needs to rally, and it needs to do so soon. Over the past 30 days, the tops 5 sectors have been oil and gas exploration, integrated oil and gas, coal, heavy construction, and steel. These are not the sectors you want to see leading the market to new highs.

So the big question is, will the Nasdaq recover and rally, thus causing the market rally strengthen, or will it break support and hinder the market? Personally, I think the Nasdaq will recover very soon and will breakout. One thing is for sure, when the Nasdaq finally breaks out, it will play 'catch up' and will rally much faster than the S&P 500 and the DOW.

The reason I think the Nasdaq will breakout is because the technical situation of the semiconductors. The semiconductors hold the key right now to the Nasdaq and the market: If the semiconductors breakout, they will carry the Nasdaq with them and you will see a broad based market rally instead of a one sided 'old economy' rally like we are presently experiencing. You will want to keep an eye on the semiconductor index next week, as it holds the key to unlock a broader based market rally.

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Let's take a look at the charts:

Just as I stated above, except for the Nasdaq, the other major indexes are rallying to new highs. As you can see, the DOW Jones broke out to new highs last week and has broken a bullish ascending triangle to the upside.

Beautiful breakout for the S&P 500 from a triangle pattern.

The 'Big Picture' chart of the S&P 500 is very bullish, as you can see, the S&P 500 could potentially run to the next major resistance area in the low 1300s.

However, as I stated above, the Nasdaq currently holds the key to the market and it needs to breakout and rally, otherwise the current market rally is suspect. Therefore, let's focus on the Nasdaq and look at it from every angle we can:

The chart below is the 1 year chart of the Nasdaq. Just compare this chart to the DOW and S&P 500 above to get a feel for just how severely the Nasdaq is under performing relative to the these other major indexes.

On the chart below, the Nasdaq has major resistance near about 2100. If this level can be broken, then the Nasdaq will likely begin a strong 'catch up rally. However, if the small up trend line is broken to the downside, then the Nasdaq will likely test the 200 moving average.

On a 60 minute chart, you can clearly see the mega important trendline that must be broken to ignite a strong market rally. Make sure you keep a close eye on this chart next week.

The next chart is the Nasdaq / S&P 500 ratio: This chart tells you how Nasdaq is performing relative to the S&P 500.

Obviously, the Nasdaq has been under performing relative to the S&P 500 since mid. December. This is another very important chart to keep an eye on next week. The down trend line is very important and must be broken in order for the Nasdaq to rally and catch up with the other major indexes.

Let's take a closer look at the chart above via a 60 minute chart. Again, please keep a close eye on this chart next week, it is very important for the Nasdaq and general market. If this downtrend line is broken to the upside, then the Nasdaq will likely experience a large 'catch up' rally.

Let's look at the long term chart of the $NDX / S&P ratio. As I've highlighted over the last few weeks, this indicator has been awesome at predicting major buy/sell signals for the Nasdaq.

The next chart is the QQQQ chart along with the corresponding buy/sell signals from the chart above. My point is, you may want to consider going long several thousand QQQQ if the indicator chart above gives a buy signal via breaking the downtrend line.

The next chart is the percent of Nasdaq 100 stocks above the 200 moving average. As you can see, this chart is forming a bullish falling wedge. A breakout to the upside would be very bullish for the Nasdaq.

Just like the Nasdaq holds the key to the market, the semiconductors hold the key to the Nasdaq. As you can see from the chart below, the semiconductor are on the verge of breaking out, resistance is about 1200. Swing traders as well as day traders will want to keep an eye on semiconductor stocks for trades. Keith currently has INTC on his watch list.

Another sector that looks great is utilities. In particular, AYE has a great looking chart and is listed on the daily watch list and is part of the electric utility sector.

The pharmaceutical sector looks like it is trying to breakout from a basing pattern. On the daily watch list, you will find ELY and MRK which have great looking charts.

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The CRB will just not quit! However, this steep ascent cannot continue, I expect a pullback soon.

A few weeks ago, I stated that crude oil would test $55 once $50 was broken, as you can see this has occurred. The next major resistance is the low $55s. The rally in crude oil is one of major factors causing the run up in the CRB.

With oil rallying, oil stocks have been on fire! Just look at the chart below: If you currently own oil stocks then you are very happy, just be sure to move stops up along the way to protect profits. However, if you do not own oil stocks, they are too far gone to buy here. They may rally more, but the risk/reward ratio is no longer in your favor. Oil stocks can be bought on a decent pullback or consolidation.

As you can see, the world is currently experiencing global broad based rally.

The only sector I would avoid right now is biotech. As you can see, the biotech sector is breaking down on a weekly long term chart.

In the fall of 2004, I stated that the Japan Nikkei index looked extremely bullish as an inverse head and shoulder was forming. Nothing has changed and this bullish pattern continues to form. Major resistance is about 12500, with the 1st target at about 14,500, and the second target at about 17,000.

Japan has been in a sideways secular bear market since the early 90's. It looks like it's time for the secular bear market to end and a new bull market to begin in Japan.

Please realize that an investment in the Nikkei will likely need to be held for 1 to 2 years in order to come to fruition. If you have the extra capital, such as in a 401k, then an investment in an fund that follows the Nikkei could be a great investment.

Ways to take advantage of a bullish Nikkei are: UJPIX (Japan Ultra Profunds), or the two ETFs, JOF and EWJ.

So how does one take advantage of this potentially bullish situation with the Nikkei?  One could buy one of the Japanese ETFs, symbols EWJ or JOF. However, the Profunds Ultra Japan offers more bang for the buck. For example, if the Nikkei goes to the first target of about 14,500, this would correspond to target of about $75 for UJPIX, a very nice return!

Realize that this will likely take a year or more to come to fruition.