Semis, Nasdaq at Critical Point
By Helene Meisler
RealMoney.com Contributor
5/8/2009 5:07 AM EDT
URL: http://www.thestreet.com/p/rmoney/technicalanalysis/10498390.html
It’s time for yet another channel check. This time it’s because Nasdaq has managed to fall right down to the bottom of its channel. That was quick! 
And now it becomes critical. Not just because Nasdaq needs to bounce if the uptrend is alive and well (we know where I stand on that), but because for the first time since the lows the Nasdaq McClellan Summation Index stopped going up. One more down day and it will roll over. Keep in mind I have stated several times that unless and until the indicators roll over and we break that lower channel line we can’t officially call an end to this rally. So the big test now is in the next few days.
As if that wasn’t enough, the Semiconductor Index, or SOX, which I have harped away at for weeks now, is sitting at its uptrend line. But the ratio of the SOX to Nasdaq is once again back at the uptrend line.
What we might say is that each time we’ve gotten to the “line” we’ve seen the market get saved and rally. This time there is a minor difference; this time the McClellan Summation Index has stopped going up. Many of you have inquired about the ratio of Nasdaq to the S&P 500 that I haven’t discussed in quite some time and my comment has always been, until the Summation Index rolls over, it’s only a threat. Well, let’s have a look at that ratio since we have the McClellan Summation Index threatening. Point A is late January 2007. On Thursday I discussed 2006 and let me note that the relentless rise from the low in July 2006 came to an end in February 2007. Point B is early November 2007. I’m sure I need not remind everyone that Nasdaq made its high on Oct. 31 that year. Point C is early September 2008. Another point in time that was not a great time to put new money into Nasdaq stocks.
So you can see from the charts above the semis and Nasdaq are at a critical point. If we break the channel and get negative volume (down volume more than up volume) I think it will mean the end to the uptrend. For those who would like a positive or two, I will note that new lows didn’t expand at all Thursday and the utilities were positive all day. So now we’ll see if this market is just like 2006. Can it save itself and just keep on rallying? I think even if it saves itself with Friday’s employment number, the cracks are beginning to appear. But this time it’s in the semis, not in the banks.
For more explanation of these indicators, check out The Chartist’s primer.
Know What You Own: Meisler mentioned the Semiconductor Index. Some stocks in the index are Altera (ALTR) , Intel (INTC) , Broadcom (BRCM) , Advanced Micro Devices (AMD) , Micron (MU) , Motorola (MOT) and Teradyne (TER) .
At the time of publication, Meisler had no positions in any stocks mentioned, although holdings can change at any time. Helene Meisler writes a daily technical analysis column and TheStreet.com Top Stocks. For more information, click here. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.