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In addition to the bulls putting up a strong fight in the small caps today, vigorously defending the 800 level on the Russell 2000 index, the major indices including the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite are well off their lows. However, the semiconductors are one of the glaringly weaker areas of the market today, along with the materials.
One of the stronger areas to start 2012, the semis are still above their primary breakout level from the middle of January. The issue now is how deep this pullback will go. I expect the rising 50 day moving average on the SMH to act as study support, especially on the first touch. Beyond that, the move in the semis is yet another example of the stealth corrections going on underneath the surface of this market. Despite the move lower in the materials and semis, capital is not fleeing equities as an asset class. Instead, we look to be seeing a rotation over to the IYR, the non-cyclicals, and perhaps some of the small caps as the day goes on.
As has been the theme of my posts, I am apt to let this rotation play out rather than positioning for a categorical “risk off” scenario, until proven otherwise.
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