I mentioned that when the markets are healthy and moving higher, the Nasdaq 100 usually leads the way in both points and percentage ratio. If you recall, the spread had retraced exactly 62% (Fibonacci retracement number) of the selloff from August 2008 until December 2008.

From high to low, the spread fell about 80 points this week before rebounding over the past two days. The high on the spread (the Nasdaq 100 minus the S&P 500) was about 530 points – and for the indexes to turn bullish again, the spread should trade above 530.

Since the spread action can be a leading market indicator, what about the best leading indicator for the Nasdaq?

There are a couple that I use, but the one that has a bigger influence on the Nasdaq indexes is Semiconductor Index – and I use the ETF that represents it.

So take a look at the daily chart of the Semiconductor HOLDRs (NYSE: SMH)

As you can see, SMH has closed above its 200-day moving average a few times, but has since reversed and closed below its uptrend line last Friday.

It has also broken below its uptrend channel, drawn off the March lows. The stock looks like it’s still headed lower, at least over the short-term, with the next support around $18.40.

Always keep an eye on SMH as it could help in making your trading decisions.

Jim Stanton

Source: Ticker Of The Week: Semiconductor HOLDRs (NYSE: SMH)