SEMICONDUCTOR INDEX TESTS 52 WEEK HIGHS -- SEMICONDUCTOR HOLDERS HAVE ALREADY BROKEN OUT -- ADI AND MU TURN UP

SOX IS CHALLENGING PREVIOUS PEAKS ... Last Friday the Nasdaq Composite Index broke through 2100 for the first time this year and started to show better relative strength. Technology leadership is normally good for the rest of the market. That's why today's strong action by the semiconductors may carry a double benefit. Chart 1 shows the Semiconductor (SOX) Index trading at a four-month high and challenging the previous peaks hit in March (449) and last December (454). A close through those two chart barriers (which appears likely) would be a bullish breakout for the chip group. The fact that its relative strength ratio is also on the verge of achieving a new yearly high confirms the new leadership role in the semis and the technology sector. The Semiconductor Holders (SMH) have already broken out to a new 52-week high.

Chart 1

SEMICONDUCTOR HOLDERS HIT 52-WEEK HIGH ... One of the simplest ways to participate in the chip breakout is with the Semiconductor Holders (SMH). Chart 2 shows the chip ETF having already achieved a new 52-week high. Its 52-week relative strength ratio is doing the same. A number of prominent chip stocks were already trading at 52-week highs including National Semiconductor and Texas Instruments. Intel and Applied Materials are among today's upside volume leaders. Some chip stocks that have been lagging behind are just now starting to turn up, including Analog Devices (Chart 3) and Micron Technology (Chart 4). MORE LATER.

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