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Technology Stocks : Semi Equipment Analysis

SOXX 302.00

+2.6%

Nov 10 4:00 PM EST

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To: Donald Wennerstrom who wrote (36134)	10/7/2007 5:12:18 PM
From: Return to Sender	Read Replies (1) of 95390

Amateur Investors Weekend Stock Market Analysis (10/6/07) amateur-investor.net All three major averages have managed to make new 52 weeks however overall volume has remained below average. Generally when a an Index of Stock makes a new 52 week high on below average volume that usually spells trouble for the longer term unless volume can increase as the Index or Stock moves higher. For example let's look at a longer term chart of the Oil Service Holders (OIH) which have been trending higher for the past 5 years. Notice when the OIH made new 52 week highs in the middle part of 2006 (points B to C) after gong through a correction (points A to B) there was much higher volume associated with the correction (point D) versus the rally that followed thereafter (point E). This was eventually followed by a more significant correction (points C to F) in which volume increased once again (point G). Meanwhile notice what has been happening in the OIH since July. Although the OIH has been trending higher and making new 52 week highs (points H to I) volume has dropped off dramatically (point J) as compared to the amount of volume (point K) that occurred with the last correction (points L to H). This overall pattern looks very similar to what occurred in the middle part of 2006 right before the OIH went through a substantial correction (points C to F). Thus this is why I'm concerned with the market rising on below average volume despite it making new highs of late. Meanwhile another thing to keep an eye on is the Semiconductor Sector as tracked by the (SOX). Normally the Nasdaq and the SOX pretty much move in the same direction however when they begin to diverge that is something which can't be ignored. While the Nasdaq has been moving higher the past month (points M to N) the SOX has virtually gone nowhere. The last time this type of divergent pattern developed was in the early part of 2006. Notice back then the SOX peaked in early January (point O) while the Nasdaq still trended higher through the month of March (points P to Q). However as the SOX continued to trend lower the Nasdaq eventually sold off as well (points Q to R). Right now it looks like a similar pattern could be developing as the SOX potentially peaked in mid July (point S) and if the weakness continues eventually this may pose problems for the Nasdaq as well within a month of two unless the SOX can begin to make a significant move higher in the coming weeks. As I commented on back in late August and early September there has been one indicator that has done a good job of forecasting some significant bottoms in the market going back to the mid 1990's which is tied to the % of Bearish Investment Advisors using a 3 Week Moving Average. Since the mid 1990's each time the % of Bearish Investment Advisors has risen over 35% (points T) this has been followed by a bottom in the S&P 500 (points U). The 3 Week Average of Bearish Investment Advisors rose over 35% from late August into early September (point V) which was close to when the S&P 500 made a bottom (point W). At the time I thought the S&P 500 would retest it's August 16th low leading to the formation of a Double Bottom pattern which would lead to a significant end of year rally into part of 2008 much like occurred from late 1998 into 1999 when the S&P 500 developed a Double Bottom pattern. However as we have seen the Double Bottom pattern never materialized this time around so it's going to be interesting to see whether this latest signal from the Bearish Investment Advisor Sentiment will turn into another longer term rally like occurred from August of 2006 through February of 2007 (points X to Y) or whether it will turn into shorter duration rally like we saw back in late 2002. Finally there a number of chart patterns to look for that can provide good returns when the market is acting well. Some times a stock will trade nearly sideways for a period of several weeks or even months while developing a Flat Base pattern before eventually moving higher. As an example notice PSMT traded nearly sideways for 9 months before breaking out in the middle part of 2006 accompanied by increasing volume and then proceeded to double in price by the end of the year.

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