Semiconductors try again to break

Ahhh....those dreamy January days when I thought the worst was behind the semis. Things were looking rosy in March and it did manage a test of its 200-day MA, pushing to a high of $33.69, but after that it was all down hill. Almost a year has passed since the semiconductor HOLDRs (SMH) knocked around $29-30 range, now they trade in the $15-16s.

Since August the declines have been withering; 2002 lows of $15.97 were breached and the sector is down 84% from its 2000 highs - a Depression if ever I saw one. I mention it now because it is one of the first sectors to gain strength after a recession. Not that it is doing much 'leading' or showing great 'strength' but it has managed to break the August-November decline.

This break needs to challenge the 50-day MA quickly so bulls can absorb the inevitable selling likely at this important moving average. The index was unable to absorb the double whammy of 50-day and 200-day MA convergence in August but now it has room to make a break of one before challenging the other.

If there is a sector due to catch a break it's the semiconductors. The question is, can it build on this kernel of hope?

Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts and stock charts website

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