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Why October Will Be a Rough Month For Stocks

By Jeff Clark
Tuesday, October 10, 2006

Like a golfer who plucks a few blades of grass and then tosses them into the air to check which way the wind blows, traders can check the direction of the market by following semiconductor stocks.
 
If the chip sector is acting well, then the broad market is poised to rally. If the chips are behaving poorly, then investors should be cautious.
 
So, as all the happy folks on CNBC are dancing on the floor of the New York Stock Exchange and singing, “Dow 12,000 here we come!” we can’t help but notice a strange wind blowing.
 
The Dow rallied to a new all-time high, and the S&P 500 is at its highest point of 2006. But as this chart of the Philly Semiconductor Index shows, semiconductor stocks are lagging noticeably behind...
 
 
In fact, the chips are just about 20% below their highs from January. The Philadelphia Semiconductor Index – which tracks more than 40 semiconductor stocks – has been trading lower for most of the past month, while the Dow and S&P have powered to new highs.
 
A good, strong rally in semiconductor stocks would wipe out this negative divergence, and allow us to watch Bob Pisani and the rest of the CNBC gang waltz across the NYSE floor a while longer.
 
Otherwise, the band will stop playing, and the weakness in the chips will lead to a fairly sizeable correction in October.
 
If last week’s 13% plunge in chip leader Micron Technologies (NYSE: MU) is any indication, it looks like we’re in for a difficult month.
 
Best regards and good trading,
 
Jeff Clark




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%