Sterling Weekly for November 14th, 2005

Well, the overall market as measured by the Dow Jones Industrial Average moved higher over the course of the last week. For the record the Dow advanced 110.94 points or approximately 1%. Not a bad week. For the last couple of weeks I have been talking about a triangle pattern forming on the Dow and what to expect as a result. (To review that article please click here) One of the things about triangle patterns that I have found to be different from a lot of other patterns that are drawn with trendlines is that the trendlines on a triangle pattern can be a little fuzzy at times. What I mean by this is that sometimes they will be violated, giving a false sense of a break one way or the other only to return to oscillating within the converging trendlines. Currently we have broken above the downward sloping upper trendline on the Dow. I am almost certainly expecting a round of profit taking, sometimes referred to as a pullback in the market. Whether we return to oscillating within this pattern or whether that broken trendline that was previous resistance becomes support remains to be seen. Time will tell and I don't think we will need to wait long to find out.

Last week I wrote about the Amex Broker/Dealer Index 'XBD' and Merrill Lynch 'MER' both of which had recently set new yearly highs. Well, both the Broker/Dealer Index 'XBD' and Merrill Lynch 'MER' continued to push higher throughout the week with both of them setting new yearly highs again today, Monday the 14th. Today the Amex Disk Drive Index 'DDX' set a new yearly high.

The 'DDX' is designed to measure the performance of a cross section of companies active in designing and manufacturing electronic data storage devices for computers, as well as software that helps computers interface with those devices. The components of the index are Sandisk 'SNDK', Adaptec 'ADPT, M-Sys. Flash 'FLSH' Advanced Digital 'ADIC', Network Appliance 'NTAP', Quantum Corp. 'DDS', Seagate Technology 'STX', Iomega 'IOM' (I didn't realize they were still even in business) Hutchinson Tech. 'HTCH', and Maxtor Corp. 'MXO'. This is an older sector index having more relevance when it was established back in 1996 than it does now. But the fact that it is setting a new yearly high when the personal computer manufacturers are having a tough year should tell us something. A couple of these companies don't even produce disk drives, but they do produce flash memory storage. You know that memory used in an Ipod and the memory sticks used in digital cameras. It is the performance of SanDisk 'SNDK' and M-Sys. Flash Memory 'FLSH' that are powering this index to new yearly highs, and considering that that the market for actual disk drives is a bare knuckle brawl of competition and has been for as long as I can remember it will probably be those 2 companies that help the 'DDX' continue to set new yearly highs. Personally I like 'SNDK' the better of the two. I think the 'DDX' will continue to move higher over the course of the next couple of months and test its highs of 150 set in January of 2004. If it does SNDK and FLSH will be rewarding to those investors who go along for the ride.