In my September 7th article for Forbes, I said “Semiconductor stocks, which tend to lead the U.S. stock market both higher and lower, have recently made an abrupt and unexpected upward reversal which, if it holds, is likely to lead the broad market to new all time highs by year end.”  The PHLX Semiconductor (SOX) Index turned on a dime the very next day and has since risen by 6%.  Meanwhile, the broad market has already risen to new all time highs as of last week, way ahead of my initial expectations. The best news of all is that the SOX potentially still has another 6% to go before it reaches my upside target.

I pay special attention to semiconductors because they, along with other high flyers like biotech, tend to lead the U.S. stock market both higher and lower.  This tendency to lead is because these higher beta areas of the market are the ‘fast horses’ that aggressive investors jump on during a risk-on environment, to try to catch some relative outperformance versus the broad market S&P 500, and are the first ones they jump off of when the environment changes to risk-off.

The green highlights in Chart 1 below, an updated version of one from my September 7th article, identify the August 31st breakout in the PHLX Semiconductor (SOX) Index as well as the 1214 upside target it implies.  The red highlights show that the SOX spent last week negotiating overhead resistance at 1150, which is the index’s June 9th benchmark high.

A sustained rise above 1150 resistance this week would clear the way for another 6% rise to reach my target.

The lower panel of the next chart, another updated version from my previous article, plots the daily total net assets invested in the iShares PHLX Semiconductor ETF (SOXX), which tracks the SOX.  I spend a great deal of time tracking ETF asset flows because they are one of the few indicators I have come across in my career that actually lead price.  The September 7th version of this chart showed that these assets were testing the $1.13 billion threshold for the third time since mid June, which I identified as an important decision point.

This updated version shows that these investor assets have since passed this hurdle with flying colors, aggressively expanding by an additional 8% or $116.6 million, to new historic highs.  This expansion of assets is important because it shows us that the recent strength in the SOX Index was based on real investors dollars buying the index and holding it overnight, indicating bullish conviction rather than just intraday speculation.  In simple terms, aggressively expanding investor asset confirm the validity of the recent move higher.  Moreover, as long as these assets continue to expand, the SOX will eventually reach my 1214 target.

Finally, and perhaps most important, is the statistical correlation between the SOX Index and the broad market S&P 500.  Table 1 below shows that the SOX and the S&P 500 have maintained a stable and nearly lockstep positive correlation to one another at various intervals over the past 20 years, most recently 0.94 over the past month.