Tech Sector Takes Over

Back in late August, I said that if technology didn't start to participate and lead the way in the market's rally, I'd be very suspect of any move higher. The underperformance of the semiconductor sector has been one reason why I have been neutral on the move in the major indices. Instead, I have focused on undervalued sectors, which have done very well.

But that all changed yesterday. The Philadelphia Stock Exchange Semiconductor Index finally broke through resistance and moved above the 200-day moving average for the first time in seven months.

Over the past year, the semiconductors have been the weakest part of the technology sector and a continuous lead weight for the Nasdaq. That's not the case anymore, as the SOX broke through the consolidation it has been forming over the past three months. That may attract a renewed inflow of money into this group and into the Nasdaq. That, in turn, may push this overextended market even higher before we get a much-needed rest.

Let's take a look at the charts.

SOX

The SOX has unsuccessfully been attempting to break above 475 for the past few months. Last week, the steam started to build as it moved above and held the 50-day moving average. Then yesterday, it exploded above the 475 level and the long-term 200-day moving average.

This bullish breakout may indeed lead to another leg higher. It has resistance at 500, 525 and 550, but the latest move could be the first step toward overtaking those levels. A break back down into recent consolidation or below 440 would signify a false breakout. Unless that happens, this move is very positive.

Intel

Intel (INTC - commentary - Cramer's Take) also had a very good day, moving up more than 4%. Intel hasn't had this strong of a move in several years. That bodes well for the semiconductors, the Nasdaq and the general market.

Intel broke out of resistance in late September. Since then, it has held above the 50-day moving average and successfully tested it over the past few weeks. Tuesday's strong move came on increasing volume and has moved the stock up near resistance at $22. If Intel can overtake that level, it will be the first positive step to work its way through a barrage of overhead supply.

Nasdaq 100

The Nasdaq 100, or NDX, also sprinted to new five-year highs yesterday, moving up more than 1%. The NDX has caught many investors off guard by moving straight up since its low in July. This V move blasted right through major overhead resistance at 1750 without even taking a rest.

Although this index is very stretched to the upside, it shows no sign of weakness at this point. A significant correction could come anytime, but investors don't have too much to worry about until it breaks the red uptrend line. Until then, this channel is intact.

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At time of publication, Manning had no positions in any of the stocks mentioned in this column, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.