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DIVERGENCES WITHIN THE SEMICONDUCTOR GROUP

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While the Nasdaq trades near a 52-week high, the Semiconductor HOLDRS (SMH) remains well below its Jan-04 high and has shown relative weakness over the last few months. There is also a split within the group as Applied Materials challenges resistance and Micron Technology (MU) tests support. Until both get on the same page, the Semiconductor group is likely to remain in a funk and continue underperforming the Nasdaq.

Applied Materials (AMAT) formed a double bottom over the last few months and is testing key resistance around 18. The double bottom represents a base over the last few months with support at 15.5 and resistance at 18. A break above 18 would confirm the pattern and the upside target would be around 20.5. Upside volume has been rather strong lately and this increases the chances of a breakout.

While AMAT is challenging resistance, Micron Technology (MU) is testing support and formed a potential head-and-shoulders over the last few months. This pattern is mostly associated with reversals, but can also signal a continuation. A move below neckline support would signal a continuation lower and project further weakness to around 9. Should MU hold support at 11, look for a break above 13 to ignite the stock and the Semiconductor HOLDRS.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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