SMH Plan Of Action

yesterday with the SPX
(
$SPX.X |
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PowerRating) +0.6% to the current rally high close of

1197.62. NYSE volume was again on the light side at 1.28 billion shares, and for

the past five days, the volume is in a tight bracket between 1.26 and 1.31

billion shares. The volume ratio was positive yesterday at 78 and breadth also

at +1363. The Dow
(
$INDU |
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PowerRating) was +0.8% to 10,538, the
(
QQQQ |
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side, in line with the SPX, except the semiconductors with the
(
SMH |
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PowerRating) +1.8%

on the day. Since the April lows, the SMH is +16.4%, the QQQQ +11.4%,
(
SPY |
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PowerRating)

+5.9% and the
(
DIA |
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PowerRating) +5.6%. The SMH is now at a triple top level that

stretches back to October 2004 (see chart), so after some retracement, the

Generals could easily put the upside pressure on by breaking the SMH out of the

34.95 – 29.65 range. Regardless of whether they break it out, price is at the

lowest common denominator because daytraders can play the high end of the range

on short setups, but the stops are tight and it is easy to cover and reverse. I

consider it to be a better position opportunity because the SMH could trade to

the low end of the range, and lower, or break out to the upside. My position

choice was to initiate a long synthetic straddle (delta neutral), so I can

capitalize on whatever direction is resolved. The range is about 18%, so that is

plenty of room to make adjustments within that range even if there is no

breakout in either direction. Net net, you let the market make the decision and

you are in position to capitalize on it either way. Premium time decay is the

risk if price remains dead center, but I think that is a low probability right

is out in New York after a week or more of rain, so I think many of the players

will start the weekend early today. That means prices can be pushed around