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Broad market rally being lead by semiconductors

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The Semiconductor Index (SOX.X) is today's leader in a nice broad market rally. On Friday, we saw much the same activity for the bulk of the session until the last two hours of trading. What traders will want to do later today is compare how the markets close today to Friday's close. Unless there's some "bomb" dropped before today's close, expect things to hold up a lot better than Friday. One reason I say this is that some of the deep cyclical indexes like the Forest/Paper Products Index (FPP.X) have not only broken downward trend, but is back above its 50-day MA. Not much different is an almost identical performance by another deep cyclical group in the S&P Chemical Index (CEX.X). Back in October and again earlier this year I felt that these groups needed to perform well if technology stocks were to have any type of hope and right now things are looking very good for the cyclicals and that should spell good things for technology groups 6 to 9 months from now.

S&P Chemical Index (CEX.X) Chart - last eleven months

Traders might envision the CEX.X making a nice move ahead of the Fed meeting on March 20th when Mr. Greenspan could announce another rate cut. We've all heard the saying, "buy the rumor, sell the news." Things look bullish here with a price target of 460 right before the Fed meeting on March 20th.

Forest/Paper Products Index (FPP.X) Chart - last eleven months.

One reader commented that I have "too many" trends on my charts and it can get confusing. Usually every chart I show has at least three trends. The length of the trend then helps me determine what "stage" of trend (long-term, intermediate-term and short-term) is the overriding trend so I can manage my account and trade size accordingly. The longer the trend the more powerful if often is. At some point a long-term trend will get broken (upside or downside). If the break of trend comes with volume, the move in the direction of the break in trend is often times powerful. It tough to look at an index chart and ascertain if the index broke the trend on volume. That's why I stress the point to monitor stocks in the group and see what they're doing at different trend points. Hey? What's International Paper (NYSE:IP) doing? It's in the Forest/Paper Products group!

Jeff Bailey
Staff Analyst

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