The semis are an important sector if the NASDAQ wants to stage any sort of rally to old highs. Before you get too excited though, realize that the semis have staged multiple breakouts of triangle patterns, all which have eventually failed. The SMH still has to contend with a significant amount of overhead resistance. But if it were to break through to 40, just 6% higher, the semis should have clear sailing for a big move.
The semis are also an important barometer of the overall tech sector. You can see from the chart below the relationship between the semiconductor stocks and the consumer staple sector. This relationship reveals whether investors are positioning themselves defensively, by buying staples such as Proctor and Gamble (NYSE:PG), or aggressively (by buying more volatile and cyclical semiconductor stocks). The breakdown in May of last year confirmed that the speculative stocks were in for a tough summer. Similarly, the current breakout signals that investors are beginning to take on more risk after March's sell off.