This week I pulled out to some weekly charts, and in the case of the Semiconductors I had to pull out to a monthly chart to find any meaningful support that might come into play in the near future.
The NDX is still has the resent relative strength of all the major indices, but there are some very mixed signals happening in the core sectors that support the NDX so lets take a look and see whats happening there. For the NDX to get some real strength
at least 3 of the 4 sectors should be heading up.
Hear was my scorecard for the sectors on tonights call:
Biotech > Positive, holding long term uptrend and rally would help NDX
Internet > Neutral, sideways, some good Google news needed to send this back up
Software > Negative, chart looks bad and sales look soft going forward
Semiconductors > Negative, chart looks bad and ready to fall off a cliff
Biotechs and Internet will really need to do the work as the Software and Semis are just wild cards at this point. If they ALL do bounce soon in unison then the NDX could get a nice rally.
SemiConductors:
My take is that this will continue to be a longterm downtrending sector. The first clue is that it's near 5 year lows so the price action is telling the story. Second is that the margins in this business are all but gone. In 1986 I bought my first Kaypro computer with 2 floppy drives for $3200 (and that was with my employee discount and didn't include a monitor). Three weeks ago we bought a brand new Dell computer with a 19 flat panel and FREE shipping for $419 -- chips are more of a commodity now then ever the margins continue to erode. When margins erode so do profits, it's a vicious cycle that the manufacturers will need to deal with along with the potential of decreased demand in the current weak economy. This is all just my opinion but and prices will do what they want, but there are few industries like the semiconductors that have seen their margins erode to this extent and it is showing up in the charts.
I had to pull up a monthly chart on the semiconductors because there is no other evidence of support areas on the weeklies. It needs to hold this area or it could be a big fall to who knows where?
SemiConductor Sector Index Monthly Chart:
Software:
Software has been forming a Head and Shoulders pattern on the weekly charts, but aside from that it's confirming the continuation of a downward trend with lower highs and lower lows. It has some potential support at 550, but very little support after that. A weaker economy my spell less business spending that will likely continue to weigh on this sector.
Software Sector Index Weekly Chart:
Biotechs:
If the Biotechs can hold on to the upward trendline then there may be hope! Last week it put in a strong bottoming tail and this week so far has confirmed the continue movement up. This is a good one for the NDX right now. However, to be far to the bears it too has a lower low and lower high so technically it's still in an intermediate downtrend. (Long term trend is still up)
Biotech Sector Weekly Chart:
Internet:
When I think of internet I think of Google and from my experience this chart and Google's are very similar. Like the software sector index, the internet chart is also forming an Head and Shoulders pattern on the weekly. It too continues to trade in a confirmed intermediate downtrend with lower lows and lower highs. As of today the weekly candle is forming a bit of a topping tail as it's testing the 30MA and 100MA on the weekly. It's at a very pivotal point right now very much like the NDX and the Internet Sector my be the tipping point for the NDX one way or the other.
Internet Sector Index Weekly Chart:
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