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Is the tail wagging the snake\?

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Earlier we had mentioned that the Semiconductor Index (SOX.X) was trying to take on the role of the head of the snake, and the Telecom Index (IXTCX) was the tail. For those of you not familiar with the snake analogy, the premise is that you have to monitor the strongest sector (the head), as well as the weakest sector (the tail) to get a feel for what is going on in the market. This morning the Dow and the Nasdaq were higher, but volatile. Later in the morning I noticed the Telecom Index had turned negative. The SOX and other tech sectors were still holding onto gains, but later that hour the SOX turned negative.

Telecom Index and Semiconductor Index

Usually the head should lead and the tail should follow, but if the tail is weak enough it can drag the strong sector down with it. I'm guessing the weakness in the SOX is some profit taking going on before the weekend, but if one sector starts moving keep an eye on the other for confirmation.

Jeffrey Canavan
Assistant Analyst

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