Watching the Semis

The NASDAQ 100 and S&P 500 have both moved up to very significant levels. Both indices are back up near last year's highs, both have been moving up on solid volume, and both have room to continue the run before technicals become overbought. It is important that these indices either break through to new highs or base for a while at these levels. If they get turned back here it would be quite bearish and will make for difficult trading for the next few weeks. In addition to the bullish technicals, the good news is that double tops are rare so let's hope the bulls can keep this rally going for just a while longer. For argument's sake, let's place ourselves in the shoes of the bears here. Perma bears have been trying to catch a top every time the market has rallied over the past couple of years as they look for impending doom to set in. When they have turned out to be wrong their short covering has juiced the rallies allowing the markets to climb a wall of worry. Here we are once again back at last year's highs, an area that constitutes multi year highs. What better place for perma bears to put on new short positions in an attempt to catch the top? Specifically we are once again watching the semiconductor indices. The SMH closed back at last year's highs yesterday. Shorts were likely put on side-by-side against the long bets yesterday. If the SMH can move over $39.15 or simply just close over $39.00 we should see some very explosive action as shorts start getting stopped out and the overwhelming realization that they were wrong once again takes hold. Someday they may catch the top the precedes the big crash, but we are betting that this time will once again be wrong.