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After a strong surge off the August lows, Merrill Lynch Semiconductors HOLDRS ($SMH) is in pullback mode the past two weeks. If the price action continues to consolidate above the 38% Fibo level connecting the last swing high and low on the weekly chart below, then we could see a bull flag type pattern develop. With bull flags, we love to see symmetry. If the pole section of the flag takes 5 weeks to form, then the flag portion should take no more than 3 to 5 weeks (maybe even 6) before breaking out. One or two more weeks sideways would be ideal in $SMH, followed by a breakout to new highs on the year.

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