One particular area of the market that has gotten a lot of attention in the last 24 hours is Semiconductors. And as we know, strength from this group – both relative and absolute – is considered to give a bullish tone to the overall equities market. In fact, some have argued that Semiconductors are one of the best sub-industries to be used as a gauge of economic health, as everything we own and interact with becomes more electronic and digital. In the past, strength among these names has been a theme in strong bull markets:
David Cox seems to agree with that mindset:
I don’t think that strong relative strength in semiconductors is what you’d expect in a bear market
— David Cox, CMT, CFA (@DavidCoxWG) July 24, 2019
Here’s a look the the PHLX Index ($SOX) from Willie Delwiche, Managing Director & Investment Strategist at Baird:
Bonds market concern about the global economy is not being echoed by semiconductors (which are making new highs). pic.twitter.com/FeAMfh6SKh
— Willie Delwiche (@WillieDelwiche) July 24, 2019
Here’s a longer-term view from Newton Advisors’ Mark Newton:
$SOX push higher this Spring, exceeding 2018 highs (which had held former all-time highs in 2000) is a positive price-wise, yet monthly momentum dragging substantially, and not confirming Price move to new highs- Weekly & monthly counter-trend exhaustion would line up in SEPT pic.twitter.com/xo6Qch6pDI
— Mark Newton (@MarkNewtonCMT) July 24, 2019
The recent rally has been quick, but we saw a similar move earlier in the year:
In the span of seven months, the SOX has had a 50% rally in under four months and then a 26% rally in less than two months. $SMH https://t.co/YzQNKgo0j0 pic.twitter.com/V9JFkXrLAK
— Bespoke (@bespokeinvest) July 24, 2019
While some say the move is a bit extended, the conversation below between Carl Quintanilla and Charlie Bilello helps put things in perspective:
Perspective: in March 2000, the Semiconductor Index was 39% above its 50-day moving average… pic.twitter.com/kaSqSHuCbs
— Charlie Bilello (@charliebilello) July 24, 2019
In regards to individual names within the space, what are traders and investors specifically looking at?
Christian Fromhertz of Tribeca Trade Group believes NVIDIA ($NVDA) could reach an upside target of $189, leaving roughly 6-7% more potential in the name from yesterday’s close:
$NVDA NVIDIA Co
– heading toward $189 upside VPOC target #magnet pic.twitter.com/zdOtzVKdJj
— Christian Fromhertz (@cfromhertz) July 24, 2019
Micron ($MU) has reach new highs lately:
$MU Micron …New highs. #1 holding in $XSD (although this is basically an EW ETF), #6 holding in $SOXX, #7 holding in $SMH. pic.twitter.com/oDncWnFzQD
— Ian McMillan, CMT (@the_chart_life) July 23, 2019
It’s hard to argue with the chart of Texas Instruments ($TXN). As JC Parets at All Star Charts seems to imply, based on Fibonacci levels, there’s still a bit of room left to the upside:
This breakout in Texas Instruments has been brewing for a long time. 150s coming? $TXN $QQQ $XLK pic.twitter.com/ih2zBTqasz
— J.C. Parets (@allstarcharts) July 24, 2019
The recent strength is nothing new, as so far in 2019, these stocks have drastically outpaced the S&P 500 ($SPX):
If you’re curious as to the stocks that carry the most weight in the three major Semiconductor ETFs, here is a “cheat sheet”:
Looking at these same names, below is an animated view of their relative strength versus the S&P 500 since the end of May. According to the RRG below – as it stands today – we should be focusing on Applied Materials ($AMAT), Taiwan Semiconductor ($TSM), and Cirrus Logic ($CRUS):
Clearly there are lots of opportunities available in the Semiconductor industry. Most technicians see the ability of these ETFs and indices to reach news highs as an overall bullish signal for the broader market. Further, while the 25%+ advancement over the last several trading weeks strong, an advancement of over 50% occurred earlier in 2019. Given this piece of recent data, further gains are not out of the question, especially when you consider we have seen this type of strength in previous strong bull markets.
