Anyone investing in today’s market cannot ignore the strength we are seeing out of Semiconductor stocks as a group.
The Semiconductor Sector has continued to lead the market since the low in February of 2016. If you could only pick one indicator to gauge market health, this sector is the answer.
The PHLX Semiconductor Index (INDEXNASDAQ:SOX) is breaking out on a relative basis against many other major indexes in 2017 including: the S&P 500, NASDAQ, Russell 2000, Mid Cap 400, and the Russell Micro Cap Index. Tough to argue against that!
And while the market is “extended” and “cannot go higher” to some, what are the chips telling us today? To me, as long as the PHLX Semiconductor Index stays above ~905 the overall market will continue to consolidate and/or head higher. Why? That is the 61.8% Fibonacci extension of the 2000 to 2008 collapse. This level has proven to be an important as we spent six weeks bumping into and around it before overtaking it. See chart below.
Note: There is a negative momentum divergence on the monthly chart, but soon we will know whether it breaks through or fails. I will be watching that very closely.
Now instead of just allowing a number in an index to determine our bullish bias, we have to break down it down further and look at the individual components on their own. Let me tell you, they all look great. It is not just Nvidia (NASDAQ:NVDA) ripping higher, I am really having trouble finding more than a few less actionable charts. This goes for large caps all the way down to micro caps.
If you missed the move in this group and aren’t one to chase, there are 3 names I really like in or just breaking out of big bases. These include: ON Semiconductor Corp (NASDAQ:ON), Power Integrations Inc (NASDAQ:POWI), and Silicon Laboratories Inc (NASDAQ:SLAB).
ON has broken out of its base following their earnings report on Monday the 13th. Now that this event is out of the way, we want to be long above $13.50.
Power Integrations (POWI) is acting constructively around 1999 and 2014 resistance within an almost 20 year ascending triangle pattern. If price is above $69 I find it tough to argue not being long.
Silicon Laboratories (SLAB) has broken out of a base that dates back to 2003. We have held the breakout and consolidated for 10 weeks before a new breakout in the past two weeks. Above $68 and it looks great.
Right now, I’m seeing several semiconductor stocks (charts) that look bullish. But these names are ones I believe that have potential to rip higher and see rotation into. Semi’s have been the strongest group of stocks for an entire year now, why fight it?
Thanks for reading.
Author has long positions in ON and SLAB at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.