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This column was originally published on RealMoney on April 11 at 3:00 p.m. EDT. It's being republished as a bonus for readers. For more information about subscribing to RealMoney, please click here.

I constantly remind investors that they need to pay attention to important sectors as well as the major indices. You can receive early signals from leading sectors, such as broker-dealers, retail, banks, consumer goods, commodities and technology on the underlying health of the overall market. At this time, we'll take a look at the semiconductors and what help, if any, they can give us in determining future market direction.

First, though, let's take a look at the overall view right now. The market may be nearing its day of reckoning as the major indices drift up to major resistance on lighter and lighter volume, not the bullish pattern you want if you expect a move higher.

There are also a lot of other crosscurrents that are affecting the market, from money on the sidelines, to a fairly positive earnings outlook, to a neutral


pumping money into the economy. This has led to stock buybacks, mergers and aggressively expanding businesses.

So we will have to see if the current resistance in the market is going to repel the indices back down, or if the dip buyers are going to step in and push the market to new highs. At this point, it wouldn't hurt for the market to retrace some of its current gains to wash out the weak holders and set the stage for a new move higher. However, earnings season is here, and if the selling gains too much momentum, we could easily pierce the March lows.

One sector that traders and money managers like to see participating in any rally is the semiconductors. Unfortunately, they have been fairly weak and stuck in a trading range for quite some time. If you look at the Philadelphia Semiconductor index, you can see that it has been trading in a range between 450 and 493 for quite some time.

Just looking at the overall index doesn't give much inspiration that the stocks are going to do anything exciting in the near future. However, while doing my research, I came across the few interesting charts of companies that seem to be coming alive.

Source: TC2000

Applied Materials


has been moving sideways for almost eight months. The only positive lately is that it has held above its 200-day moving average. In January, the stock looked like it was going to attempt to challenge the 2006 highs. However, it quickly broke down, then drifted back up in February to that resistance and failed again.

That could be changing based on the price and volume action we saw yesterday. The stock shot higher on heavy volume and closed at the top of the day's range. If AMAT can consolidate in this area for a few days and then break above the January highs, we may see a new uptrend developing.

Source: TC2000



has also had some interesting action over the past couple of days. On Monday it gapped up above the 50- and 200-day moving averages on heavy volume. Then yesterday it followed through on that move. The stock still has quite a bit of overhead resistance to work through in the $21.50 and $22.50 area. If traders can push the price above those areas, we may have an interesting play developing.

Source: TC2000

Analog Devices


had a breakaway gap in late February. Since then, it successfully tested that gap and moved back near the top of its range. What happens next is going to give us a lot of information about the short-term direction of the stock. If ADI can break above $37.22 on heavy volume, we may have a new leg up developing.

Source: TC2000

I feel that the semiconductors continue to be an important proxy for the market. If we continue to see this type of positive action and they begin breaking out of their consolidations, it may be a cue that the indices are going to move higher. The semiconductors have been dead money for quite some time, and if institutions start rotating back into this area, it could provide some interesting action in the market.

Finally, you probably noticed I used two different charts in this column. The white one is from and the dark ones are from TC2000. I've received some emails from readers, some of whom like and some of whom dislike the colored charts. I would like to get your opinion on which you like best, so let me know.

At time of publication, Manning held no positions in the stocks mentioned, 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;

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