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January 11, 2011  Tue 12:08 AM CT


As chip giant Intel prepares to report earnings results on Thursday, it is worth looking at the role of semiconductor names on the Nasdaq 100.

The chart below presents the NDX in teal and the Semiconductor HOLDRS exchange-traded fund in magenta. This is a percentage return chart for the last 52 weeks.


As we can see, the semiconductors and the Nasdaq 100 have tracked each other pretty closely, at least until September. At that point, though the two were trending higher together, the NDX began to seriously outperform.

What I want to highlight today is the slight negative divergence, clear on the far right side of the chart, where the semiconductors and the Nasdaq 100 are no longer moving together. While pure-play chip stocks compose only about 5 percent of the weight of the Nasdaq 100, their tendency to co-move and correlate over time could indicate that the move NDX may be coming to an end.

Back in February 2009, semiconductor stocks led the Nasdaq 100 higher. If the recent weakness in chip names holds through this earnings season, it could be a signal that the NDX's rally is entering a corrective phase.

(Chart courtesy of tradeMONSTER)

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