Last week, I displayed a chart showing the point spread between the S&P 500 and Nasdaq 100.

I mentioned that when the markets are healthy and moving higher, the Nasdaq 100 usually leads the way in both points and percentage ratio. If you recall, the spread had retraced exactly 62% (Fibonacci retracement number) of the selloff from August 2008 until December 2008.

From high to low, the spread fell about 80 points this week before rebounding over the past two days. The high on the spread (the Nasdaq 100 minus the S&P 500) was about 530 points - and for the indexes to turn bullish again, the spread should trade above 530.

Since the spread action can be a leading market indicator, what about the best leading indicator for the Nasdaq?

There are a couple that I use, but the one that has a bigger influence on the Nasdaq indexes is Semiconductor Index -

On Friday, Rebecca Darst said options traders are looking at chips. What reason(s) did she cite?

Here’s the video.  It seems to me like she mentions Infineon’s (IFX) guidance cut, a recent Barron’s article and TI’s (TXN - Annual Report) lukewarm share price. In other words, all of the above.

Infineon doesn’t show up on my screens and Texas Instruments ranks pretty neutrally. I personally think the semiconductor industry should do well, and own the Semiconductor HOLDRs (SMH) and Maxim Integrated Products (MXIM.PK) - though the latter position is a little stub spun out from the SMH when the company was delisted.

Disclosure: William Trent has a long position in SMH.

Guilty until proven innocent…that is how this market needs to continue to be treated because the trend is lower and that trend is not likely to change soon with continued blowups in the mortgage markets (TMA today). Last week I said the theme of this market is that THE MARKET HATES UNCERTAINTY and if I can come to any conclusion after having CNBC on much more than usual, it is that no one knows the full magnitude of what is going on, that is a tough environment to make money from the long side.

Volatility diminished today as the effects of the Federal Reserve action was contemplated along with nervousness associated with more potential bad news coming. The markets traded in their narrowest range in over three weeks (July 19 for the SPY). The charts remain deeply damaged and will need a lot more time before they can be considered buyable on a daily timeframe. With the 50 MA declining in the SPY and IWM, the burden of proof remains on the bulls.

Stock market video technical analysis and for Wednesday August 8, 2007 including; Nasdaq 100 Trust Shares (NASDAQ:QQQQ), S&P 500 Index (AMEX:SPY), Semiconductor HOLDRs (AMEX:SMH), iShares Russell 2000 Index (ETF) (Public, NYSE:IWM), Trend analysis for daytraders and swingtraders of stocks and options.

Stock market video technical analysis and for Monday August 6, 2007 including; Nasdaq 100 Trust Shares (NASDAQ:QQQQ), S&P 500 Index (AMEX:SPY), Semiconductor HOLDRs (AMEX:SMH), iShares Russell 2000 Index (ETF) (Public, NYSE:IWM), Trend analysis for daytraders and swingtraders of stocks and options.

The market showed some strength today (finally) after the ADVANCING 200 day moving average was probed on the SP500. The video below shows some of the other technical clues of a potential turnaround here, most notably a MACD divergence

Stock market video technical analysis and for Tuesday July 31, 2007 including; Nasdaq 100 Trust Shares (NASDAQ:QQQQ), S&P 500 Index (AMEX:SPY), Semiconductor HOLDRs (AMEX:SMH), iShares Russell 2000 Index (ETF) (Public, NYSE:IWM), Trend analysis for daytraders and swingtraders of stocks and options.

Stock market video technical analysis and for Monday July 30, 2007 including; Nasdaq 100 Trust Shares (NASDAQ:QQQQ), S&P 500 Index (AMEX:SPY), Semiconductor HOLDRs (AMEX:SMH), iShares Russell 2000 Index (ETF) (Public, NYSE:IWM), Trend analysis for daytraders and swingtraders of stocks and options.

Stock market video technical analysis and for Friday July 27, 2007 including; Nasdaq 100 Trust Shares (NASDAQ:QQQQ), S&P 500 Index (AMEX:SPY), Semiconductor HOLDRs (AMEX:SMH), iShares Russell 2000 Index (ETF) (Public, NYSE:IWM), Trend analysis for daytraders and swingtraders of stocks and options.