The weekly chart of the SMH shows that the bulls did a good job this week of defending the primary support trendline since the October 2011. Headed into this week, the semis had been flashing some warning signs, though the overall trend is still clearly higher especially with the bulls arriving on the spot to the support them.
I also want to make an observation about volume. As you can see below, it has tapered off immensely since last year. Low volume rallies during cyclical bull markets within the context of secular bear markets are commonplace. They can often go on much longer than seems possible, despite the low participation. Since 2000, there can be little doubt that the Nasdaq is in a secular bear. Accordingly, low volume is an insufficient reason to go out and short a market, looking for an imminent top. Context is crucial to analyzing the technicals, and I think that is particularly relevant in this case. What is of more importance to me is that the bulls have thus far defended the major support trendline. I am looking to see if they can follow-through back to the upside next week, first and foremost.
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I am seeing this same look on many weekly charts. The look has me salivating like I’m out to dinner with Jessica Alba, we’re two glasses of wine deep, and the server is walking up with my smoked duck.
Both SMH and OIH have seen dramatic dropoffs in volume due to structural issues.