Dare We Believe in a Chip Rally?

Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com. He's also a regular contributor to RealMoney, TheStreet.com's subscription site. If you'd like to see all of Jon Markman's RealMoney commentary, click here for information about a free trial.

---

An electrifying change has taken hold in the market over the past couple of weeks that goes well beyond the simple sense that stocks are behaving better. For the first time in more than 18 months, shares of the nation's major utilities have definitively weakened, while the shares of the nation's major technology companies have gathered strength.

The switch in market leadership from companies that are bought for dependable cash flows to companies that represent a speculative bet on the future says a lot about the potential for the strength of the recent rally. It says that investors are finally emerging from their defensive, woe-is-me stance toward equities and are instead staking their money on the potential for better times ahead.

This undercurrent of optimism is most clearly evident in the ratio between the Dow Jones Utility Index, which tracks the nation's 15 largest electricity and natural gas distribution companies, and the Philadelphia Semiconductor Sector Index, or SOX.

The ratio between the utility and semiconductor indices -- now trading at 364.89 and 425.23, respectively -- is currently at 0.86. To produce a more definitive signal of a growing taste for risk, the ratio would have to drop below 0.81. To do that, the utility index would need to sink to around 350, while the SOX would need to trade around 435 -- both of which would be real trend-changing levels.

These kinds of shifts don't occur very often, and they are typically persistent. The last time this change took place, it lasted six months -- from July 2003 to January 2004. Over that span, innovative chipmaker Broadcom(BRCM Quote) rose 60%, while chip-equipment maker Teradyne(TER Quote) rose 55%. Before that, the change in the mood for risk aversion persisted much longer -- from August 1998 to March 2000. In that heyday for technology stocks, industry mainstays like Intel(INTC Quote) rose more than 500% in value.