Good Morning, Traders. Divergent close as the markets were volatile to the downside in the morning and to the upside in the afternoon. The Dow closed off 23.05, the S&P shed 2.52, but the Nasdaq Composite managed to add 1.42. Part of the relative strength in the $compx was due to relative strength in the Philadelphia Semiconductor Index which has been on a tear over the last two trading days. In fact, if it wasn't for so much weakness in biotechs yesterday, the Big Picture believes that the Nasdaq would have shone even brighter. The $BTK (Biotechnology Index) was the weakest sector in the ShadowTrader Core Sector List losing 2.33% since the open, while the $SOX was near the top (beaten only by $GOX (mining) and up 1.24%. Its rare that there is so much divergence between sectors whose stocks generally trade on the same exchange. In any case, its a firm example of sector rotation as institutional money is putting more weight into semis and lightening positions in biotech. In the daily chart below, we see what some technical analysts call a "frying pan" or "rounded" bottom forming in the $SOX index. A rounded bottom usually leads to higher prices and has strong odds of testing the same levels as where the left hand side of the 'frying pan' started, which in this case is at approximately 540. If the $SOX tests this area then odds are very strong that the "handle" of the frying pan or cup will form off to the right between roughly 527 and 540 and we will then see higher prices in semis which should also give the Nasdaq Composite a leg up. Things are shaping up ok. The Big Picture remains cautiously bullish, with overall bias up and near-term bias also up.

Peter Reznicek is the Chief Equity Strategist and a principal of the Prana Fund, a domestic hedge fund, and ShadowTrader, a subsidiary of thinkorswim which provides coaching and education to its clients on both intraday and swing trading of equities. For a free trial to the full version of The Big Picture or to learn about ShadowTrader's other services, visit shadowtrader.net or send an email to preznicek@shadowtrader.net.