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Are The Semiconductor's Talking To Us?

|Includes: CREE, INTC, QQQ, VanEck Vectors Semiconductor ETF (SMH)

As we all know the NASDAQ Composite index has soared with most of the major indexes since the February 5th pivot low in the markets. The Power Shares QQQ Trust, Series 1 ETF (NASDAQ:QQQQ) has made a new high for 2010. This is certainly bullish action whenever an index can make a new high. However, there is something troubling about this move higher and it is the lagging semi's.

Most traders know when an index is showing powerful strength the major component or industry group in the index should confirm by making a new high as well. If you look at the Semiconductors Holders Trust ETF (NYSE:SMH) you will see that it is below the January high. While it has rallied off the February 5th low it is not at a new high for the year. The semiconductors have historically lead the NASDAQ Composite and this time the sector is lagging the index.

Many of the leading stocks such as Intel Corp (NASDAQ:INTC), and Texas Instruments Inc (NYSE:TXN) have lagged the NASDAQ 100, and the NASDAQ Composite. These are two market leaders that are below there January highs.

The technically strong stocks in the semiconductor sector have been Sandisk Corp (NASDAQ:SNDK), and Cree Inc (NASDAQ:CREE). These two stocks are at new highs for the year and leading the industry group higher. They are both above their daily 50 and 200 moving averages.

There are some strong stocks and there are some weak stocks in the semiconductor industry group. However, the overall group is below the January high. This could be a red flag as the semiconductors have usually lead the NASDAQ Composite higher. It is important to keep this sector on watch at all times as this could be one of the signals if the market declines.

Nicholas Santiago
Chief Market Strategist

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