Como se combate o populismo? "Com eleições", responde Fukuyama

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Time Is on the Rally's Side

By Helene Meisler
RealMoney.com Contributor
7/26/2006 9:01 AM EDT
Technical Analysis
The market can make rally attempts right into month-end mark-ups.
The Bank Index ratio to the S&P isn't good enough yet to justify a bet on banks.
The ratio of the SOX to the Nasdaq has shown a negative cross.

Isn't it exciting? We've now had two up days in a row!

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Funny, I recall saying the same thing last Wednesday morning as well. Maybe I jinxed it by taking notice; we got one more up day and that was that.

On the oscillator chart, you can hardly see these last two days. That's because the oscillator still has time on its side.

There is still time left for the market to make rally attempts for the remainder of this week.

Coincidentally, that leads us right into the end of the month, where we have the potential for mark-ups.

But more than the rally, I've got two ratio charts on my mind. I want to follow up on the ratio of the Bank Index compared with the S&P 500. When I last discussed this chart, I said I expected it to back off from that downtrend line, and it has. It continues to do so this week, despite a 28-point rally in the S&P.

I expect that sometime in the next week, we'll begin to see this ratio hold and turn upward. If and when that time comes, I will be sure to let you know. For now, the banks continue to be underperformers.

I also want to discuss another ratio I keep but have shown on an infrequent basis. It's the ratio of the Semiconductor Index to the Nasdaq. As you can imagine, it has been declining in recent months, and is now at 19%. There is nothing special about 19%, except that in January 2005 we got that low and bounced, and did the same in April 2005. The first trip down there post-2000 came in October 2002.

For that reason, I submit that a break of 19 would be considered quite bearish for the semiconductors.

Of course, when we look at the chart of the SOX, we see that this 480-ish level corresponds with the ratio chart's 19% level. In fact, there is plenty of support all of the way down to around 375 on the SOX chart. And if it gets down there, it probably will be oversold enough to rally. My concern is not so much for the support breaking on the SOX chart; I'm more concerned about what we see when we look more closely at that ratio chart.

Note on the ratio chart that the surge up through 20% that came in February 2000 (point A) was a breakout of sorts and we haven't really broken back down below this level since then. Yes, even in the depths of the bear market in 2002 the ratio remained above this level. Therefore I would consider a break of this level serious.

The SOX really ought to try and hold this 375 support the first time down, but if this ratio breaks, I believe it means the next time down the SOX will break 375 rather easily.

And because everyone seems so concerned about crosses as bad omens, I can tell you that the SOX actually got one around mid-June. The 200-day moving average on the SOX has rolled over, so the two moving averages are both heading in the same direction.