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June 23, 2007LOOKING AT THE SEMICONDUCTOR INDEX By Chip Anderson
Richard Rhodes
Last week's stock market correction was rather "brutal" to be sure; however, we believe that the balance of evidence suggests at this time it is nothing more than a correction and more likely a consolidation to higher highs. If this is so, then we want to be long those stocks that shall "lead" the market higher. At this juncture, our models and analysis argues that using current weakness in the semiconductor sector to accumulate shares will provide outsized gains in the months ahead.
Looking at the daily chart of the Semiconductor Index ($SOX), we find a rather longer-term, large and clear bullish pennant consolidation has formed. Of course the ultimate resolution should obviously be higher; and if we use the percentage measurement of the Oct-2002 to Jan-2004 rally added to the July-2006 low – then we arrive at rough reading of 1000 or nearly a 100% increase from current levels. We have a very hard time believing this given our skeptical nature, but this is simply a hard and fast technical measurement. In any case, moving average support has held, and a breakout above pennant resistance will likely lead to a "melt-up" of some degree given the large short position outstanding in the semiconductor sector and its relative "unattractiveness" over the past 4-years in which it has underperformed the S&P 500.
Every dog has its day they say; perhaps now it's the Semiconductors turn to bark.
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
June 23, 2007SERVER ROOM MOVE COMPLETED! By Chip Anderson
Site News
It took w-a-y longer than it was supposed to but all of our servers are now fully moved into our new, cooler, more powerful datacenter. The new datacenter will allow us to continue adding newer, more powerful computers that will allow our site to run even faster.
CHART SNAPSHOTS BACK ON-LINE - The "snapshot" feature of our ChartNotes tool is now working again. Extra members, please let us know if you have any problems with your Snapshots list.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
June 23, 2007SUBPRIME CONCERNS HURT BANKS AND BROKERS By Chip Anderson
John Murphy
Growing concerns about the fallout in the subprime mortgage market caused heavy selling in banks and brokers today. Today's selling more than wiped out yesterday's rebound in the financial group. Chart 1 shows the Financials Sector SPDR (XLF) undercutting yesterday's intra-day low. It's now threatening its 200-day moving average. Most of the selling came in brokers and money center banks most directly affected by subprime problems.
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
June 23, 2007SIX SIMPLE STEPS FOR FINDING GREAT STOCKS By Chip Anderson
Chip Anderson
This week, I thought we'd revisit an article I wrote way back in November of 2001 about the "Six Steps" you can take at StockCharts.com to quickly guage the overall health of the market and find great stock opportunities. While the graphs are all out-dated now, the concepts are still very valid and hopefully helpful. Enjoy! - Chip
We get lots of questions about what the best way to use StockCharts.com is, so this week I thought I'd incorporate one answer to that question into the newsletter. While there is no 100% best way to use all of the resources that StockCharts provides, here's the routine that I follow at least once a day. Its goal is to offset all of the panicky, rush-rush information that the financial media spits out with a calm, top-down approach to market analysis. It incorporates all of the major tools on StockCharts and provides me with my technical "feel" for what's really happening to the markets. Here are my steps:
Step One - Gauge the Performance of the Major Markets
Up, Down, or Sideways? The market has to be moving in one of those three directions, right? So which way is it? Often, the media will mislead you badly when it comes to answering this simple question. As always, it boils down to time frame. Are you looking at the last minute, hour, day, week, month, year or decade? Each timeframe often has a different answer from the next. To deal with this question, I always start with our Major Market PerfChart.
The key to using the tool correctly is to s-t-r-e-t-c-h the slider! Don't just stare at the chart like a zombie! Grab your mouse, grab the left edge of the slider at the bottom of the chart (see where my cursor has turned into a double-arrow in the picture above?), and start stretching! Find the major turning points in the market and stretch or shrink the slider until they are at the left edge of the chart. Only then can you really see how the major averages have done. By boiling everything down to percentages, uptrends and downtrends become clearer as does the other critical thing to look for - divergences. In early 2000, the blue chip averages diverged sharply from the high-tech stocks, signaling trouble ahead. Stretch your slider until you see this divergence clearly. It's the best argument I know of for checking this chart religiously.
After getting the longer term performance picture, press the F1 key. Boom! There's the last week in a nutshell. Now press F2. Bang! There's last month for ya. Finally - you guessed it - F3. Ka-blammo! Year-to-date in one pretty picture. Always start with this chart and don't leave it until you have a firm grasp of how the major averages are doing.
Step Two - Examine the Intermarket Picture
Bond prices, Commodity prices, and the Dollar all affects stock prices. And stock prices affect them. And they all affect each other. John Murphy has written about these intermarket linkages extensively. We maintain a special "Intermarket" PerfChart just for studying these linkages - specifically seeing whether each of these things are moving in tandem or moving apart (diverging). As we explain below the chart, you should look to see if three key things are happening: Are stocks and bonds moving in the same direction? Are commodities and bonds moving in different directions? Is the Dollar moving in a different direction from commodities?
 To study each of these relationships, hide the other two lines by clicking on the colored box for that line above the top of the chart. Now start sliding that slider. Look at the direction of the movements, not necessarily the magnitude. If you can make the two likes look like "mirror images" of each other (with the zero line in the middle), then they are moving in an INVERSE relationship. For example, the chart on the left shows the current inverse relationship between commodities and the US Dollar. If you can get both lines above or below the center line, they are currently in a POSITIVE relationship. Study each of the three key intermarket relationships using this technique, then compare your results to the comments below the chart. This information helps you gauge the health of the market's current trend.
Step Three - What's Sector Rotation Saying About the Economy?
Last week, we talked about Sector Rotation and the PerfChart that we use to analyze it. By "reverse engineering" the state of the economy from the strength of the various sectors, you can stay 2-3 months ahead of those big-whig economists and their lagging Government reports. Read last week's newsletter for more details.
Step Four - Study the Yield Curve
January 26th, 2000. That's when the one of the best signals for a looming market top was given. On January 26th, 2000, the Yield Curve inverted. Our Dynamic Yield Curve analysis tool shows this clearly. Never, never, never ignore the Yield curve. It can also be used to confirm the state of the economy from your Sector Rotation analysis. See the bottom of the Sector PerfChart page for details.
On the live version of this chart, don't forget to click around on the S&P part to see where the yield curve was at that point in time.
Step Five - Does Market Breadth provide Confirmation?
OK, by now you should have a good sense of where the markets are and where they may be headed. Now, study the market breadth charts and see if they support your conclusion. Many people like to start their analysis with breadth charts like the Advance-Decline lines, the McClellan Summation charts, and the Bullish Percent Indices. I think that is a mistake. Since the markets are the subject of this whole endeavor, they should be studied directly. Secondary data like breadth and volume should be "held in reserve" to confirm or dispute the analysis of the primary data - i.e. prices.
That said, now is the time. I LOVE THE BULLISH PERCENT INDICES! They are unlike anything else out there in that they summarize the price action of hundreds of charts, boiling them down to a percentage. What could be simpler? You don't even need to understand P&F charting to use these things! Our Bullish Percent CandleGlance page has everything you need. I look at it every evening.
The McClellan charts that we get from the good folks at DecisionPoint.com are the perfect compliment to our BPI charts. I'd never bet against the Summation Index. When it changes direction, the market's current trend is in doubt.
Step Six - Creating the "Hot/Not" List
OK, we've developed a solid understanding of the big picture (the market), now we can drill down with confidence and the Sector Market Carpet is where I go next. Updated throughout each trading day, the carpet shows me at a glance which sectors (and stocks within those sectors) have done well during the past day, the past week, and the past month. It's almost like seeing an X-ray of the S&P Sector PerfChart.
Some things I look for: Within each sector, do the brightly colored square (red or green) cluster towards the upper left corner of the sector (where smaller-cap stocks are) or do they cluster towards the lower right corner (the mega-caps)? Are there any sectors with (for instance) one or two bright-red squares with the remained light green (and thus the sector's overall rating could be misleading). How does the carpet change when I switch it to absolute RSI mode (select RSI from the dropdown, unclick the 'Delta' button - see the instructions page for details)? Next, I switch to RSI Change mode for the current week (click the 'Delta' button and then press F1). Which sectors (look at the number in the upper right corner of each sector's area) had the best improvement in overall RSI? Which stocks in those sectors led the way?
All of this visual carpet information goes into the making of my tentative "Hot/Not" list - stocks that I think are worth additional investigation. When I spot a promising stock that's part of a sector that, based on the previous steps, also looks promising, it goes on this list.
The Real Work Begins At the End
After completing these six steps, I am ready to analyse my Hot/Not list in detail using one or more of the more common TA techniques - P&F signals, chart patterns, support/resistance, Elliot Wave methods, candlestick signals, stock scans, indicator signals, etc. (all covered in our ChartSchool). Many people start their analysis process by using these techniques on individual charts. I think that is also a mistake. By taking the time to develop and confirm a sense of where the markets and sectors are going before looking at individual stocks you will always have the big picture in mind and can add the calm voice-of-reason to your investment decisions.
Again, there are hundreds, even thousands of different ways to look at the markets. This technique is only one of those ways. I offer it in the hopes that you'll take it and use it as a starting point for developing your own analysis routine that builds upon these ideas. Good luck!
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
June 09, 2007A GOLDEN OPPORTUNITY By Chip Anderson
Tom Bowley
The market periodically finds reasons to selloff, even in bull markets. This past week it was all about interest rates. You could see it coming. Interest rates had been rising for the last month. The yield on the 10 year treasury bond increased from 4.61% on May 8th to a high of 5.18% on Friday, June 8th, before settling back at the close to 5.12%. Equity markets get skittish as interest rates rise, and generally for good reason. When rates rise, access to capital begins to dry up, capital expenditures drop and corporate America sees shrinking profits. Think about what's driven the market for the last year or more - private equity deals, merger mania, and corporate share buybacks. As access to capital becomes more difficult, we see less of what's been driving the market higher.
But is this rise in interest rates temporary or permanent? And what's causing it? The answers to those two questions will directly impact equity prices over the next many months and quite possibly 1-3 years. First, you have to realize that bonds trade the same as stocks and their prices move up and down, rarely do they move in just one direction. Keep in mind also that as bond prices rise, yields drop. Conversely, as bond prices drop, yields rise. That's what we've seen over the past thirty days, a deep selloff in bonds and yields on the rise.
Look at the long-term chart of the yield on the 10 year treasury bond. Because bonds trade like stocks, technical traders follow the same basic principles. Long-term trendlines matter. As you can see from Chart 1 below, the yield on the 10 year treasury bounced off of long-term trendline resistance on Friday.
The second chart that we'd like for you to look at is a short term candlestick chart of the yield over the past few months. After a lengthy downtrend in bonds and a corresponding uptrend in yields, we saw the "dreaded" black candle appear at the top of the uptrend - see Chart 2.
If you're looking at the price of the bond, you'll see a red hollow candle appear after a lengthy downtrend. Both are reversal signs. We believe there is a very strong chance yields topped on Friday and began moving lower.
Black candles appearing the way this one did suggests that the heavy selloff in bonds and exhaustive gap down on Friday (and corresponding spike in the yield) is signaling the bottom of ten year bond prices and the top of the yield. The fact that the yield reversal occurred right at long-term resistance gives us more confidence the top has been hit.
We continue to believe that inflation is not a problem in the U.S. When the Fed meets at the end of June, we expect to hear that inflation remains a concern, but that they expect it to moderate throughout the balance of 2007. That news will keep interest rates in check and propel equity prices higher. Of all the scenarios that include higher interest rates, the only one that is terribly troubling is the scenario that shows inflation rising. If interest rates do continue their climb to offset a strengthening economy, we remain steadfastly bullish equity markets. Inflation is the wild card and we are convinced it is a non-event in 2007 and 2008.
Use the recent weakness in the stock market to buy for the longer term. We tend to recognize opportunities after they're over. Take a look now before it's too late.
Posted by Chip Anderson at 4:06 PM in Tom Bowley | Permalink
June 09, 2007NASDAQ RECOVERS By Chip Anderson
Arthur Hill
The Nasdaq held support and led the market higher on Friday. Even though Thursday's decline was quite drastic, the Nasdaq never broke support from its May lows and the medium-term uptrend remains. Nasdaq support is just above 2500 and extends back to the January highs. The index established a resistance zone around 2510 and this resistance zone turned into support during May. This is a classis tenet of technical analysis: broken resistance turns into support. While this week's three day plunge was the sharpest decline since late February, the index is still holding support and I would not put on my bear hat until a break below 2500.
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
June 09, 2007CORRECTION AT LAST! By Chip Anderson
Carl Swenlin
We have been watching prices trend higher for several weeks, even as internal strength trended lower and warned that price weakness could be ahead. Finally, this week prices broke down in a big way, signaling the start of a correction that could last at least a few weeks.
Our first chart is of the Participation Index (PI). The PI measures short-term price trends and tracks the percentage of stocks pushing the upper or lower edge of a short-term price trend envelope. Specifically we track the participation of each stock in a given index. A trend needs a strong plurality of participation to be maintained. We can see how UP participation, the number of stocks actually driving the up move expands as the market moves higher, then the PT contracts prior to short-term market tops. A similar thing, but in reverse, is beginning to happen now with DOWN participation now as the market begins its correction. Note the strong down spike accompanying Thursday's sell off.
While it is always possible that the correction is complete, it is more likely that it will play out somewhat like the February-March correction which is visible on the chart. In other words, it could take a couple of weeks and several tests of support before the rising trend resumes.
The next chart puts the correction in a long-term context. We can see that prices are dropping down from the top of a rising trend channel, and support will be encountered at around 1430. As long as that support holds, no serious technical damage will have occurred. It is reasonable for us to expect that the current selling is temporary and that the up trend will resume.
Bottom Line: While we are experiencing a short-term correction, I have no reason to believe that the longer-term rising trend is in jeopardy. While corrections are uncomfortable to ride out, they are healthy and necessary, and we should hope this one builds a strong base for the next rally.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
June 09, 2007MARKET FOCUSING ON 10-YEAR NOTE YIELD By Chip Anderson
Richard Rhodes
Last week saw stocks sell off rather sharply for several days, of which the catalyst was the sharp rise in bond yields as inflation and too strong growth concerns too center stage. Since bond yields are now the tail wagging the stock market dog – we think it imperative to understand perhaps where bond yields are headed given stocks are now showing a highly inverse correlation with bond yields. If bond yields are headed higher; then ostensibly stock prices are headed lower.
The market's focus is upon the 10-year note yield; it is clear bond yields are in a bull market given the bottom forged in 2003, with a subsequent series of higher lows and higher highs. Also, we must point out that the 120-week moving average tends to illustrate the trend rather well, and further provides support to declines. Our concern, and it should also be our clients concern – is that a technical "head & shoulders bottoming pattern" is forming, of which a breakout above 5.25% would break neckline support and lead to still higher yields... perhaps sharply higher yields towards those extant in early-2000 at 6.75%.
Market participants aren't mentally prepared for this circumstance. Can you think what the world would look like if 10-year notes were at 6.75%? What the stock market would look like? What would have to happen for this to occur? Most – including us have been conditioned on a low interest rate environment after the technology bubble burst, as well as the sub-prime implosion. We and others looked for lower interest rates; not higher interest rates. We were wrong headed; now we must contend with a world with greater risks and lower levels of liquidity... and perhaps sharply lower stock prices after a 5-year bonanza.
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
June 09, 2007NEW SERVER ROOM STATUS By Chip Anderson
Site News
We've moved about 70% of our servers into our new server room where our new chiller plant keeps the temperature a "toasty" 60F degrees at all times. We are working as hard as we can to ensure that there are as few interruption as possible as we move things around - so far there have been none - but at some point soon we are going to need take the site down to get the final couple of items relocated. Watch the "What's New" area of the website for an announcement on the specific time for the final move.
SNAPSHOTS NOT WORKING - The "Snapshot" feature of our website has been offline for a while now as we wait for one of our server to be repaired by the vendor. Despite paying a pretty penny to have the repair expedited, the vendor is still waiting for a backordered part. Until that part arrives, the snapshot feature of our Extra service will be offline. Please remember that you can always right-click on any chart in your browser and save the chart as a snapshot on your local hard drive.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
June 09, 2007TRACKING THE DOW'S INTERNAL HEALTH By Chip Anderson
Chip Anderson
Things got a little bumpy last week as the Dow had a big "down" day on Thursday. Friday's recovery was reassuring, but was any lasting damage done? One of the best ways to examine the overall "health" of the Dow is to look at the total number of Dow stocks that are above or below their 50-day moving average.
StockCharts.com tracks that information closely via the $DOWA50 and $DOWA50R market indexes. $DOWA50 contains the actual number of stocks that are above their 50-day moving average. It is updated once a day after each market close. Because there are 30 Dow stocks, the value of $DOWA50 ranges from zero to 30. $DOWA50R is a percentage-based version of the same information - i.e., its value ranges from 0% to 100%. Use the "R" version when you want to compare this information to similar indexes for other markets (e.g., $SPXA50R).
Below is a great chart for you to use to examine the "internal health" of the Dow.
The most interesting thing this chart shows is the difference in behavior of the A50 line back in late February versus its behavior during the past week. Back in February, the Dow suffered a similar big decline in value, but in that case, the A50 line dropped significantly and continued to move lower. This past week, the Dow fell and then immediately recovered - so did the A50 line.
Maybe even more telling in this case is the behavior of the A200 line. February's decline resulted in a very visible dip in the A200 line. Last week's decline barely even registered.
Remember that indexes like the Dow can move significantly for a number of different reasons - the A50 and A200 lines can help you determine the importance of those movements.
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
May 19, 2007TAKE ME OUT TO THE BALLGAME By Chip Anderson
Tom Bowley
Folks, we're merely in the second or third inning of a nine inning game. Let there be no doubt, the bulls are in charge. And they will remain in charge. This current bull rally goes beyond interest rates, earnings, inflation, blah, blah, blah. It's not that those fundamentals aren't important, they are. But we are talking about supply and demand, Economics 101. We are seeing deal after deal after deal. We have been talking for months at Invested Central about the long-term effect of all of these buyouts and private equity deals. First of all, the fact that these deals are occurring at all should give you a clue about valuations - prices are CHEAP. Did you notice the premium Microsoft was willing to pay for aQuantive? How about 77%? We hear very little about initial public offerings (IPOs) and secondary public offerings. Instead, it's about buyouts, private equity deals, and corporate stock repurchase plans . That equals supply reduction. As supply dwindles, prices rise assuming demand is constant. The best news is that demand hasn't even begun to pick up yet. During the bull market run from 1995-1999, the NASDAQ rose more than 5% in a calendar month 22 different times. There were 22 different calendar months that produced gains of more than 5%. So, on average, the NASDAQ had 4 or 5 of these months each year. Interestingly enough that during the NASDAQ's advance since July 2006 there has not been one calendar month of 5% appreciation. Yet I heard last week talk of another "bubble". Let's get real! The psychology of investors is so tainted since the 2000-2003 NASDAQ crash that they cannot see the forest for the trees. I want to reprint a chart that was posted in a previous newsletter to give you the Big Picture view of what's transpiring in the stock market. I call it the "Axis of Normal Returns" (see chart below). Over short and intermediate terms, the market's pricing efficiency struggles, but over the long term generally gets it right. The Axis of Normal Returns provides a look at the Big Picture.
We anticipate a strengthening economy in the second half of 2007, an accommodating Fed - which we haven't had in several years - and, as a result, expanding multiples. The put call ratio, a contrarian indicator, continues to reflect bearishness or at best guarded optimism. Historically, that has not been a sign of a topping equity market. Rather, it provides the fuel for a further advance. As long as skeptics abound, the market has plenty of upside remaining.
Posted by Chip Anderson at 4:06 PM in Tom Bowley | Permalink
May 19, 2007DOLLAR TRYING TO TURN UP By Chip Anderson
Carl Swenlin
The U.S. Dollar is trying to turn up for the fourth time since it topped in 2004, but this bottom looks more promising than the prior three. While the long-term trend is down, this bottom is the third confirmation of the descending wedge formation, a technical configuration which normally resolves to the up side. This wedge is also a long-term formation, so the direction of a breakout has long-term implications.
In the short-term we have a PMO (Price Momentum Oscillator) buy signal, generated when the PMO crosses up through its 10-EMA. Also, the price index has broken above the short-term declining trend line. Medium-term we have a positive divergence as the PMO has been making higher highs corresponding to lower price lows.
On the long-term chart below we can see other positive signs. Most important is the long-term support zone between 78 and 80. There is no guarantee that the support will hold, but we have to view it as being in the plus column. Assuming that the support does hold, the bottom that will result will form a double bottom that spans over two years. Like the wedge formation, this will have very positive long-term implications.
Bottom Line: Let there be no doubt, the trend is down in both the medium- and long-term (our trend model is still bearish on the dollar), and it is too early to assume that a change in trend is taking place; however, there are plenty of reasons to begin nursing some positive expectations.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
May 19, 2007PLATES STILL SHIFTING By Chip Anderson
Richard Rhodes
We recently featured the S&P 500 Large Cap vs. Russell 2000 Small Cap ratio surrogate using the ETFs SPY:IWM; with the implication that the tectonic plates were shifting beneath the markets, with large caps slowly, but surely coming back to favor at the expense. This was simply the thesis based on "looking through" out indicators; however, last week provided clear confirmation that indeed - a major breakout had taken place on the daily as well as the weekly and monthly charts. Obviously, this has major implications for our trading strategy; we are increasingly likely to trade the Pfizer's (PFE) or Cisco's (CSCO) or General Electric's (GE) of the world rather than small stocks.
Analyzing the SPY:IWM daily chart once again and keeping it rather simple; we find prices bottomed in April-2006, with the "right shoulder" of a larger "head & shoulders" bottoming formation breaking out above the major 500-day moving average resistance level, and then above neckline resistance. Moreover, the stochastic pattern is supportive of further gains. This breakout could not be cleaner... nor clearer; hence our confidence level is quite high that rotation in favor of large caps will come from the small cap area. Keeping it simple again; one must trade accordingly.
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
May 19, 2007SPRING SPECIAL ENDING By Chip Anderson
Site News
LAST CHANCE FOR OUR SPRING SPECIAL - Our Spring Special ends on the last day of May. Don't miss this change to receive 14 months of service for the price of 12 (or 7 months for the price of 6). Both members and non-members can take advantage of this rare deal. To get started, visit http://stockcharts.com/help/doku.php?id=support:services
THE BIG SERVER MOVE IS ON! - After more than a year of work, our new server room is finally finished! We've started moving our servers back into their new home but the process will take a couple of weeks. The plan is to move as many things as we can without taking the site down and then - late one weekend night - move the rest. We'll post the exact time of the "big move" on the "What's New" page as soon as we know which weekend it will be on.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
May 19, 2007DOW IN PERSPECTIVE By Chip Anderson
Chip Anderson
The Dow Jones Industrials continues to rise week after week setting new records as it goes. I thought it would be good to take a quick look back and see if history can teach us anything about what the Dow does to signal the end of these long up-trends. Here's a weekly chart of the Dow Industrials going back to 1990.
This is a semi-log scale chart (the vertical axis is logarithmically scaled, the horizontal axis is not) and includes my favorite one-size-fits-all indicator, the 20-period Chaiken Money Flow.
The log scaling helps us see that the recent rise, while impressive, is no match for the HUGE rise in the Dow during the mid-nineties. We also see that during the nineties, the Dow's 20-week CMF stayed in the green for several multi-year periods. Both of those observations bode well for the current long-term trend. The Dow has done this kind of thing in the past and might be repeating itself now.
On the downside (there's always a downside, sigh...), the CMF has been in the green for just over 18 months now and that is about as long as it has ever been in the green without some kind of drop. Even during the go-go nineties, the CMF dipped into the red in mid-1996 to break up the longest above-zero stretch on the chart. With history as their guide, alert ChartWatchers will be watching the 20-week CMF for signs of weakness in coming months.
BTW, be sure to read our previous newsletter for details on our Spring Special which is almost over!
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
May 05, 2007SEMICONDUCTORS FINALLY MAKE THEIR BREAK By Chip Anderson
Tom Bowley
We've been watching and following the semiconductors for the past many months, awaiting their attempt to join the stock market's rally. But it hadn't happened....until this past week. We have remained steadfastly bullish over the past couple years and became very bullish when we saw long-term positive divergences form on the MACD on the major indices last July. Lower lows were in place, but the MACD actually put in a higher reading on those lower lows. We could see that selling momentum was dying. In articles over the past several months, we've indicated that we believe the market could be ripe for an advance - the likes we haven't seen seen since 1999 and early 2000. However, we also indicated that we expected the Semiconductors to participate. We felt we needed to see participation from the semiconductors in order for the NASDAQ to lead the major indices higher. Let's take a look at two charts. First, let's look at the Semiconductor Index (SOX). We've seen repeated struggles at 492 until finally we got the breakout we were looking for. Not only did we see the breakout, but we've since retested that breakout area and by the end of last week were looking to breakout again. This is bullish action by the group and we're not looking for any significant resistance until the 530-540 area. If the semiconductors can take out that symmetrical triangle downtrend line shown below, there is solid potential for a very significant rally in this group.
Posted by Chip Anderson at 4:06 PM in Tom Bowley | Permalink
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