Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

When compared with Monday’s session, yesterday was a calm day, although it too was littered with rumors surrounding the European debt issues. But stocks did close near the highs of the session for the second consecutive day.

Looking at our trusty daily chart of the S&P 500, note that yesterday we essentially had a follow-through up day, meaning that if traditional candlestick analysis were to apply one could now consider adding long positions. Yesterday’s candle also closed more than halfway up Friday’s red candle. Of course, this isn’t your average market, and any such “traditional” signals must be taken with a grain of salt. These days, many more things need to line up to get a signal you can trust.  

One of the things worth looking at for further confirmation at any time is the semiconductor group. I touched on the sector yesterday, and will again point them out today. Semiconductors are cyclical in nature and should lead the broader equity market. So if we see signs of bottoming or even just near-term outperformance in the semiconductors we need to take notice. 

While on the weekly charts the Semiconductor HOLDRs (AMEX:SMH) looks to have room to go lower, the daily chart shows a consolidation period (gray box). If the price were to break out of it to the upside, then this could give us a leading indicator that the broader market may follow suit. The Philadelphia Semiconductor Index (NASDAQ:SOX) that I pointed out yesterday has broken out of its consolidation period already.

Another way to look at the recent outperformance of the semiconductor stocks versus the S&P 500 is on the following chart. Note the green line (semiconductors) crossing above the gray line of the S&P 500 as measured by the SPDR S&P 500 (NYSE:SPY). Again, these are very early stages for positive signals from the semis, but they are worth keeping an eye on.

The technical picture remains much the same as it was yesterday morning. The S&P 500 bear flag remains intact, but we are neither in a position to be able to short nor to buy with any conviction at current levels. A further rally above the 1,190 – 1,200 level coupled with more clarity out of Europe may increased the odds for longs, while a clear fall out of the bear flag would do so for the bears.

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