The chart of SMH divided by DIA is below. SMH:DIA

Tonight we are going to show annotated charts of the NASDAQ Composite, NASDAQ 100, S&P 500, and Russell 2000 and point out a trend channel of possible significance in a chart of SMH (Semiconductor ETF) divided by DIA (the ETF for the Dow Jones Industrial Average).

Let's start with the that chart. The Semiconductor Index rallied sharply last week, as did the Semiconductor ETF - SMH. The index is beginning to outperform the major indices and for the first time has participated in a rally since the May fall. We are currently rallying off a third relative bottom since the May decline, and the Semiconductor Index is finally doing something. This is extremely positive for the market, suggesting that the bottom is already in.

The chart of SMH divided by DIA is below. You can notice the trend channel from the beginning of June. Two weeks ago the channel was broken and SMH:DIA broke back above the channel within two more days. Since then, the rally has been powerful, pushing the relationship to the upper end of the higher downtrend line. A break of this line will suggest that technology will continue to outperform and that it is extremely likely that the correction is over. Often when a stock or index breaks the bottom of a trend channel, the security becomes quickly oversold and bounces. A break of the upper line will suggest that this rally is indeed different than the previous two that faded.

The next chart is of the NASDAQ Composite. The NASDAQ broke our resistance line, but seems to have found more resistance at 2100. A break of the 2100 area should push the NASDAQ to 2150, before a move to the 2190-2200 area.

The next chart is of the NASDAQ 100. The NASDAQ 100 also broke our resistance line, but needs to break above 1525 to guarantee future strength to the 1575 area, followed by a move to the 1600 area.

The S&P 500 is looking extremely healthy. The index has broken our downtrend line and has ran into our resistance line. A break of 1290 should push the index to 2006 highs and beyond.

The next chart is of the Russell 2000. This index still has a lot of work to do. Currently, it has ran into its 50 day moving average and right below our resistance line and stopped. A break of our resistance line should push the index to 714, followed by a move to the upper downtrend line, and eventually the 730 area.

This rally is looking healthier than the previous two. The Semiconductor Index has taken an early lead and the S&P 500 and Dow Jones Industrial Average (not shown) have advanced to the area that if broken, will signal a move to 2006 highs and beyond.