Zeev's Turnips Patch-No Politics (ZEEV)

[marketmaven]

GT- So we're almost as overbought as April 2003?

Schaeffer on Charts: A Make-or-Break Week for Semiconductors
Bernie Schaeffer -9/20/2004 8:50 AM ET

Last week, I expressed some concerns over the semiconductor index's near-term future. The semiconductor group, as tracked by the Dow Jones Semiconductors Index (DIMSC - 86.09) is down almost 30 percent since the beginning of 2004 and is fresh from a new annual low.

Meanwhile, more and more uninspiring news continues to flow in from the fundamental front. Intel (INTC: sentiment, chart, options) reduced its third-quarter guidance earlier this month. Altera (ALTR: sentiment, chart, options) reduced sales expectations. And Samsung, the world's second-largest semiconductor manufacturer, said this morning that next year's growth rate in the chip industry would be lower compared to the past year.

Despite this foundering technical and fundamental landscape, semis were widely touted as a strong sector a few weeks ago as they rose from the ashes (and severely oversold conditions) to "rejuvenate" the technology market. And between September 8 and September 13, the PHLX Semiconductor Index (SOX - 388.50) did manage to tack on 14 percent, an impressive surge higher in just four trading days. Unfortunately for the semi bulls, the index offered zero follow-through from this burst of strength.

Now the index is facing overhead pressure from its 50-day moving average, which is getting ready to thwart the index once again (as it did on September 13). The psychologically significant 400 level is also lying in wait to stomp out the index's rally attempts. Another area of potential resistance is represented by the 30 and 32.50 October call strikes on the Merrill Lynch Semiconductor HOLDRS Trust (SMH: sentiment, chart, options) . Together, these near-the-money positions are home to more than 107,000 open calls and could provide options-related resistance. All of this is amid a backdrop of complacency, as mentioned in my last semiconductor commentary.

As the title indicates, this week should be make-or-break for the semi sector. Continued rejection from the various resistance levels could send the SOX spiraling toward new annual lows, but a break above this trendline could prove inspirational for the tech market as a whole. With triple-tiered resistance in place, however, anyone care to guess where I'd place my wager on the near-term direction?