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STATISTICS


Semiconductors Enter Primary Bear Market

08/26/11 12:45:19 PM
by Alan R. Northam

Long-term statistical analysis shows the semiconductor market sector moving from a primary bull market to a primary bear market.

Security:   PSI
Position:   N/A

The lower panel of Figure 1 shows the daily price bars of PowerShare Dynamic Semiconductor ETF (PSI). This figure also shows the 200-day linear regression trendline (middle green line), the upper and lower two sigma and three sigma channel lines. In mid-July, PSI broke down below the lower two sigma channel line to warn of a possible reversal in trend from a primary bull market to a primary bear market. Then in early August, PSI broke down below the lower three sigma channel line to signal that a reversal in trend was occurring.

FIGURE 1: PSI, DAILY. This chart shows the daily price chart of the PowerShare Dynamic Semiconductor ETF (PSI) in the lower panel along with its upsloping 200-day linear regression trendline and its upper and lower two and three sigma channel lines. The top panel shows the linear regression slope indicator followed by the R-squared indicator.
Graphic provided by: MetaStock.
 
The top panel in Figure 1 shows the linear regression slope indicator. This indicator shows the trend of PSI and a measure of its momentum. When this indicator is above zero and moving higher, it indicates that the trend is upward with increasing momentum. When this indicator is below zero and moving downward, it indicates that the trend is downward with increasing downward momentum. Note that in mid-August, this indicator moved below its zero line to indicate that the trend had changed from a primary bull market to a primary bear market.

The next lower panel shows the R-squared indicator. This indicator measures the confidence of the trend along with its strength. When a new trend is first established, this indicator is below its critical level and indicates that the current trend is vulnerable to a failure. When this indicator moves above its critical level, it indicates that there is statistically a 95% confidence level that the newly established trend will continue. When this indicator is above its critical level and rising, it is an indication that the current trend is increasing in strength. Note that this indicator moved above its critical level in mid-August, indicating that there is now a 95% confidence level that this new primary bear market trend will continue. As long as this indicator continues to move higher, the new primary bear market for the semiconductors will continue to strengthen.


In conclusion, statistical analysis shows that the primary bull market for the semiconductor sector has come to an end and a new primary bear market has been established.



Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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