The SOXX Index Getting Its Footing; Could Be In For A Run Higher

By Jim Donnelly, Olson Global Markets

Following a robust rebound from the abyss experienced in March,
investors are in search of a leader or two in order to justify an
extension to the current equity recovery.

The financial sector has stabilized. Energy prices have too. Goldman
Sachs posted outsized earnings with the Bank of America and even
Citigroup coming in with better than expected numbers. This added to
the optimism despite warnings of an uncertain second half of 2009.
Still, it might well be the semiconductor sector that could offer
considerable interest to investors. After all, earnings announcements
from both Intel and IBM sparked hope that the economy may actually be
on the mend.

It is the Philadelphia Semiconductor Index (SOXX), however, that has
caught our eye from a technical point-of-view. Since its low that was
actually set last November (2008), it appears to have found its
“footing”. Several attempts to either “retest” or break below the
November low have resulted in buyers stepping in and scooping up
bargains with deeply oversold conditions present on long-term
(monthly) charts.

In retrospect, the November low appears to have defined an important
“channel bottom” that had been in development since October 2002 …in
the wake of both the “tech crash” and 9/11. During the past few months
or so, the SOXX index has tip-toed higher, almost quietly. That said,
it is now in the process of testing key trend line resistance at the
$290.66 level drawn off the July 2007 high.

A break above that level, if it occurs, would likely lead to an
extension up to key “mid-channel” resistance which currently sits at
$322. Although that level could produce a healthy tug-of-war between
bulls and bears, long-term technical studies are bullishly positioned.

A solid break above $322, if it occurs, could conjure up thoughts of
much higher levels, including an eventual test of “channel top”
resistance at $550.

First things first, let’s see whether a set of bullish reverse Head &
Shoulders patterns on Applied Materials (AMAT), National Semiconductor
Corp. (NSM), Maxim Integrated Products (MXIM), Altera Corp. (ALTR) and
Micron Technology, Inc (MU) can help the SOXX index lift above the
$290.66 level and extend up to $322.


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