INTEL PLUNGE WEIGHS ON SMH -- TOKYO LEADS ASIA LOWER -- GOLD IS ALSO SLIPPING FROM OVERBOUGHT CONDITION -- MAJOR INDEXES TEST MOVING AVERAGE LINES

INTEL IS BIGGEST STOCK IN THE SMH ... Today's plunge in Intel has been devastating to its chart pattern. Chart 1 shows the chip and technology bellwether plunging nearly 3 points (-12%) on very heavy volume. The stock is now threatening its fourth quarter low. That helped make the Semiconductor Holders (SMH) one of the day's weakest ETFs. Chart 2 shows the SMH gapping down on heavy volume and threatening its 50-day moving average. That puts the SMH at a critical juncture. If this is just a short-term pullback, it's important that the SMH find support around that moving average line. One encouraging sign is coming from the Semiconductor (SOX) Index which ended in positive territory after early selling. The reason for the discrepancy between the SMH and the SOX has to do with Intel. Intel is the biggest holding in the SMH (22%) and has a big influence on the ETF. The plunge in Intel (and Yahoo) caused heavy selling in the technology sector which accounts for much of the Asian selling which has a heavy technology weighting. Tokyo lost another 3% today while South Korea and Taiwan also saw big losses. The latter two foreign ETFs have a high semiconductor weighting.

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JAPANESE MARKET FALLS 3% ... Yesterday I showed the Japan iShares (EWJ) breaking their 20-day average for the first time in several months which implied a further drop its its lower band and 50-day moving average. A similar price drop today has pushed the EWJ closer to that inital support zone ranging from 13.12 to 13.08. The heavy volume, however, is especally unsettling. I suggested yesterday that short-term traders would probably use the weakness (or any bounce) to take some profits. I also suggested that long-term investors might use the current weakness as a buying opportunity. Given the size of Japan's rally over the last year, some profit-taking is probably in order. I'd postpone any new purchases, however, until the current selling squall has run its course.

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GOLD AND GOLD SHARES ALSO CORRECT ... I've written several times recently about the close correlation between gold and Japan (having to do with Japan's climb out of deflation). It's no surprise then to see both correcting together. My longer term view on both remains bullish. However, as in Japan, it may be time to take some profits off the table in gold. Chart 5 shows the Gold Trust Shares (GLD) falling the equivalent of $10 in today's trading. No real damage has been done its uptrend and it remains well above its 20-day average. Short-term readings are turning weaker, however. The 9-day RSI is turning down in Chart 5. The same pattern can be seen for the XAU in Chart 6. Chart 6 also shows that the black ADX line has moved above the two directional movement lines and is starting to roll over. That's usually a sign that it's time to take some short-term profits. Even if the GLD and the XAU find support at their 20- and/or 50-day averages, they're far enough away from both to justify a little selling.

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INDEX ETFS LOSE SOME GROUND ... Although the three main index ETFs have lost some ground, no serious chart damage has been. However, this week's downturn has come on rising volume. And they're nearing some moving average lines. The Dow Diamonds (DIA) are nearing a test of their 50-day average (Chart 7). Daily stochastic lines have turned negative. Chart 8 shows the S&P 500 SPDRs (SPY) nearing their 20-day line. The daily MACD lines are dangerously close to turning negative. Chart 9 shows the Nasdaq 100 Shares (QQQQ) also threatening their 20-day average. The MACD histogram is weakening, but is still positive. The QQQQ may be the most important of the three. That's because its upside leadership is crucial to the rest of the market. Last Thursday I suggested that short-term negative divergences in the major indexes justified some short-term January profit-taking. I'm now inclined to see how the short-term picture plays itself out before recommending any further action.

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