Invested Central Chart of the Day 6.17.10

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The Semiconductor Index (SOX) is a widely followed index that comprises many of the top technology companies. This group is especially influential on the NASDAQ. Because it's generally viewed as a leading industry, we always keep a close watch on the group in determining the market's likely direction in the near-term. From the chart, you can see that the SOX has reached a critical near-term resistance area just above 375. That was the reaction high after the heavy selling in early May. After retesting those early May lows on two subsequent occasions, the SOX has climbed approximately 15% in the last week or so and is now testing critical resistance. One major factor that will help determine whether our major indices continue to climb higher in the near-term is the resistance on the SOX. Can the bulls take down that wall of resistance at 376? If so, then the overall market will likely continue its recent ascent. However, if the bears can successfully defend their turf at 376, the recent rally will likely stall. We believe profits should be taken on semiconductors at this level. In fact, for juiced ETF lovers, shorting the semiconductors with the SSG at such a critical resistance level makes sense. Why? Because if the bulls can negotiate resistance and begin to drive prices even higher, you can close your SSG position with a small loss. But if this turns out to be a short- or intermediate-term high, trading the SSG here could be quite profitable.

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