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Semiconductor HOLDRs look similar to Biotech

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From time to time, I'll see a very similar chart pattern in a stock or index that looks similar to something I saw not long ago and try to use that to my advantage. A couple of weeks ago we noted a breakdown in the Biotech Index (BTK.X) at its bullish support trend and at the same time saw that index giving a triple-bottom sell signal on its point and figure chart at the $540 level. Then we saw a spread-triple bottom sell signal given in the Biotech Index at the $530 level. With that index now trading $498, I'm thinking the broader market selling is going to catch up with the Semiconductor HOLDRs (AMEX:SMH) and there's some similarities here that have yet to play out like we've seen in the Biotech Index.

Semiconductor HOLDRs - $1 box

A trade at $40 in the SMH would be a triple-bottom sell and break of bullish support. A trade at $39 would be spread-triple bottom sell signal. The semiconductors seemed to follow the biotechs higher in late September and early October and a pattern trader may be looking to play the move lower too. Relative strength for the SMH vs. the S&P 500 is weak with RS "on a sell signal and in a column of O's."

Jeff Bailey
Senior Market Technician
Option Investor

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