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Semiconductors achieve "bull confirmed" status

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The Philadelphia Semiconductor Index (SOX.X) 429.57 +1.35% was among today's sector winners, where on Friday, the SOX.X broke above its downward trend. While a brief violation of that downward trend was broken for a day on June 30, and quickly reversed lower, today's gains has the SOX.X extending itself above downward trend, as buyers look to be gaining control in the sector.

Friday's action also had the institutionally watched Semiconductor Bullish % (BPSEMI) from Dorsey/Wright and Associates achieving "bull confirmed" status, where internals confirm the external price action.

Semiconductor Index (SOX.X) Chart - Daily Internals

After last week's earnings and cautious guidance from networking giant Cisco Systems (NASDAQ:CSCO) $19.55 +1.5%, a plethora of downgrades in the chip-equipment stocks had the SOX.X posting a modest gain, while broader technology advanced. Despite broker negativity, market participants have the SOX.X breaking above downward trend from its January 12 high of 560.68 with Applied Materials (NASDAQ:AMAT) $16.78 +3.7% closing above its rounding flat 50-day SMA ($16.45) for the first time since falling below on October 8.

Analysts currently see AMAT earning $0.26 per share when it reports earnings after the closing bell on Wednesday, which would be flat on versus third-quarters earnings of $0.26, but up from year-ago earnings of $0.06 per share.

Shares of Intel (NASDAQ:INTC) $23.77 +0.33% edged up 8 cents in Monday's trade, and currently battle a very long-term downward trend from their August 2000 highs, but have started to work their way above the shorter-term downward trend similar to the SOX.X chart for a third-straight session. Intel's 200-day SMA is trending lower at $25.21.

I'd be looking for bears to step up their short covering in the sector with the bullish % reversing up to "bull confirmed" status, where more than likely, the Semiconductor HOLDRs (AMEX:SMH) $33.63 +1.79% having achieved their bearish vertical count of $28.00 will bears more aggressive with their covering on any weakness.

U.S. Market Watch - 11/15/04 Close

Consistent with recent week's trade, the major indices refused to succumb to profit taking, where further declines in energy prices kept sellers outside of energy at bay. While I noted just a few of Monday's merger announcements, brisk volumes at both the NYSE and NASDAQ along with some renewed merger activity, which will revive some of the big brokers/investment banks should carry further bullish momentum toward the Broker/Dealer Index (XBD.X) 145.60 +0.09% in the weeks to come.

The Russell 2000 Growth iShares (AMEX:IWO) $64.75 +0.85% found a nice round of last-hour buying and now near "level #4" of our November-May seasonally bullish retracement. The $65.00 level, if breached would have the IWO trading a new 52-week high.

While I made a decision to trade the small-cap "growth" portion of the Russell-2000 bullish, the Russell 2000 Value iShares (AMEX:IWN) $185.30 +0.24% have closed at all-time highs, 7 of the last 9 sessions as overhead supply is non-existent. The IWN would currently trade just below its "level #3" ($185.44) of our November-May seasonally bullish retracement.

As noted in Friday evening's Market Monitor, I'm keeping tabs on the relative strength readings for "growth" and "value" versus the Russell 2000 Index (RUT.X) 623.86 +0.3%.

S&P 500 Index (SPX.X) - Daily Intervals

With new WEEKLY Pivot retracement overlaid, I couldn't help but notice the SPX's WEEKLY 80.9% retracement of 1,163.38 marking last week's "pullback support" at the SPX's prior March 52-week high. Most likely, that's a BIG support level for bearish buying after the MASSIVE short-squeeze developed on the break above the failed reverse head and shoulder. While bears give plenty of reason to be sellers at extended technicals, nobody likes to be short when overhead supply is nonexistent. Not even institutional computers!

Market Snapshot / Internals - 11/15/04 Close

Despite a coup'e of last-hour buy program premiums, we didn't see a ramp up in new highs at both the NYSE and NASDAQ like that found on Thursday and Friday, and this might suggest that institutional buying is starting to focus on "mid-tier" stocks that are just breaking out of bases, but have been gaining favor among buyers nonetheless.

As the month of November reaches its mid-point, NYSE volume has been averaging 1.55 billion shares traded per day, up 3% from October's 1.50 billion, while NASDAQ has been churning 1.81 billion per day, up 6% from October's 1.72 billion share per day average.

Pivot Matrix -

If we're going to see any type of "expiration" related trade this week, then I would use the SOX.X levels in the pivot matrix (and some daily monitoring of the SMH that I've been following) for the setup. Suffice it to say, the equity indices in the pivot matrix are all WELL ABOVE November "Max Pain" levels, but there's a chance to still inflict some pain on near-tern calls.

With the Semiconductor Bullish % (BPSEMI) now "bull confirmed" a trader/investors bias is now longer-term bullish, but with AMAT earnings just ahead, and likely an "in line" report coming, I've thought in recent weeks that the Semiconductor HOLDRs (SMH) might try and close around the $32.50 level. After a decline to WEEKLY S1 last week, both the SOX.X and SMH get early trade this week at WEEKLY R1, where WEEKLY Pivot for the SMH is pretty close to $32.25 at $32.66.

In Friday's Market Monitor, I thought "they can't hold'm back" as the SMH broke above $32.78. By "them" I would mean the options market maker (see 11/07/04 Ask the Analyst). If we're going to get any type of abatement in recent bullishness into expiration, then the SOX.X and SMH are closest to their November "Max Pain" where the SMH in $2.50 increments is calculated at $32.50.

The Dow Industrials (INDU) couldn't quite seal the deal at MONTHLY R1 today, and with an eye on 3M (NYSE:MMM) $82.28 -0.48%, which traded in a 90-cent range for the bulk of the session, this #3 price weighted component in the Dow seemed rather content to hover just above its WEEKLY Pivot $81.93 today.

Should MMM and the Dow Industrials (INDU) erupt further, with the INDU above WEEKLY R1, its going to be even tougher to hold the Semiconductors back at these low levels of bullish risk, even with 4 sessions to go until SMH expiration.

The NASDAQ-100 Market Volatility Index (VXN.X) 18.50 -1.7% fell today, and the SMH Jan. $32.50 puts traded 8,541 contracts with just 13,719 open interest (I'm thinking put sellers) while the Dec. $32.50 calls traded 5,222 contract with open interest of 26,633 (I'm thinking call buyers). The SMH components saw positive breadth of 19 to 1 today, where 13 of its 20 components are NASDAQ-listed stocks. Advanced Micro Devices (NYSE:AMD) $20.98 -0.19% was the lone decliner, edging down 4 cents, while Vitesse Semiconductor (NASDAQ:VTSS) $3.20 +12.28%, Atmel (NASDAQ:ATML) $3.50 +8.69% and LSI Logic (NYSE:LSI) $5.27 +7.99% had low priced names leading the SMH's percentage gainer list.

Jeff Bailey

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