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Morning Cup Of Jo

By

A key element which would help facilitate a market breakout is technology.

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"No other protection is wanting, provided you are under the guidance of prudence."

-- Juvenal

Market Comment:

In recent weeks our readers have asked us to provide updated information for potential Short-Term (ST) resistance and support levels on the four sisters. The format below is what we decided on. These levels are not intended to offer advice on what or when to buy; rather to highlight possible ST inflections points the markets may encounter next. If this format is not satisfactory, please let us know and we'll do our best to accommodate.



As discussed in numerous past 'Jo's', the markets are pushing up against resistance in the form of a slightly upward-sloping 4-year trend. A key element which would help facilitate a market breakout is technology. With that being said, today's coverage is on one of technology's key components – The SOX (Phlx. Semiconductor Index) and the Semiconductors Holders Trust ETF (SMH). On Tuesday of last week our COO, Greg Collins, was quoted in the Wall Street Journal Online discussing this very subject.

The SOX index, not unlike the majority of markets, is running up against a key resistance level and inflection point at 560. This week there are a number of different catalysts scheduled that may have an effect on this index's next technical move. One of which is the Morgan Stanley Semiconductor Conference on Wednesday March 8th in Dana Point, California.

When this index is broken down into the individual components it seems as if it's a very split tape. This is primarily evident by looking at Intel Corporation's (INTC) performance over the last two months – down over 22%. However it becomes a much different picture when you look at the top 10 positions on a percent weighted comparison.

Company Ticker % Weight This Week
Marvel Technology MRVL 11.5%
Kla-Tencore KLAC 9.5%
Broadcom BRCM 8.9%
Maxim Integrated Products MXIM 7.1%
Advanced Micro Devices AMD 7.1%
Linear Technology LLTC 6.7%
Texas Instruments TXN 5.9% Mid-Q Update
National Semiconductor NSM 5.3% Earnings
Freescale Semiconductor FSL/B 4.9%
Xilinx XLNX 4.9% Mid-Q Update


Illustrated below is a 2-year chart of the SOX which shows an exceptionally large Cup and Handle formation with a 560 neckline. If the index breaks this level with force, it should do wonders for the Nasdaq and technology sector. But please remember, an inflection point means just that. This neckline could continue to remain resistance for sometime.



Following this thought, when pundits talk about the SOX, traditionally the SMH ETF (Exchange Traded Fund) is involved in the conversation. In the following graph you can plainly see the SMH and SOX, yet close, are not identical in pattern. This is mainly due to the difference in weighing. The SMH's top three holdings make up over 50% of its total with Intel Corporation being the number one – as of 11/2005.

Nonetheless, the first resistance point converges at the horizontal line of $42 with a converging support at $36. If the SMH can surpass the $42 neckline, it will have a much better chance of actually sustaining any sort of breakout.



After the bell yesterday TXN, XLNX and Altera Corp. (ALTR) came out with their mid-quarter updates. TXN lowered high-end revenue guidance as XLNX and ALTR affirmed outlooks. TXN traded down almost 3% or $0.93, XLNX was practically unchanged and ALTR traded down $0.42 in the after hours session.

Until next time:

The KAT
No positions in stocks mentioned.

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