While there is always the option of tracking the NASDAQ indices, some investors may want to specifically target sectors within the technology group. The Philadelphia Semiconductor Index is a price-weighted index composed of 17 U.S. companies that design, manufacture, and sell semiconductors. Since its inception in 1993, the index has tracked the ups and downs of those companies perhaps most responsible for ushering in the technology boom of the late 90s. Options contracts based on the semiconductor index can be purchased at the Philadelphia Stock Exchange.

Looking at the Data
Some of the strongest, at least most prominent, corporations in America are part of the Philadelphia Semiconductor Index, including Intel, Advanced Micro Devices, Applied Materials, and Texas Instruments. Slight changes in outlooks from these four companies can lead to sharp swings across major equity indices. The Semiconductor Index is a valuable tool in analyzing the state of the whole market.

Since early 2000, then the apex of the U.S. technology boom, semiconductor stocks have fallen drastically. To see how semiconductors matched up with the technology group as a whole, let's compare the NASDAQ composite index to the Semiconductor Index.

As can be seen above, the Philadelphia Semiconductor Index tracks the movement of technology stocks at or near the same levels as the NASDAQ composite index does. It is worthwhile to note that the entire technology market seems to move in accordance with the semiconductor stocks.

Why Investors Care
Technology stocks have been leading the equity market both up and down in the past two years. It was the strength of the technology sector that created the large investment boom of late 1999 and early 2000. The semiconductor sector seems to be the backbone of the entire technology sector. Following the Philadelphia Semiconductor Index may help an investor to predict the rise of the next technology boom.

Damir Fonovich, Market Analyst, Econoday