Wednesday’s Top Stocks

Finally, we got a bounce we were waiting for. Is it going to continue? Should we
start buying aggressively? Especially if you are following semiconductor stocks,
today’s Semiconductor HOLDRs (SMH) performance is interesting.

SMH opened strongly with a gap and closed firmly near high of the day. This gap
is a welcome sign because a gap has tendency to become a reliable support.
Notice volume also exceeded yesterday’s level. It is always important to confirm
price movement with volume. In addition to volume and the gap, the RSI indicator
broke above its descending trendline.

Of course every element is not pointing to higher prices. For example, some may
argue SMH could not break out of its declining channel. But, we should look at
the angle of this channel. It is too steep. This kind of severe decline cannot
sustain too long. Although the stock is below its 200-day moving average, it
might try to fill the gap created July 14.

Let’s see one issue from the Semiconductor sector. Xilinx Inc (XLNX) broke out
of the descending channel accompanied by better than average daily volume. The
RSI is turning bullish. Notice the stock is forming a 1-2-3 bottom, and if the
issue take out the number 2 high, we might see a strong short-covering rally.

Good night and see you tomorrow.

Tsutae Kamada