#$sox

Chip stocks have been laggards of late.  While the S&P 500, Russell 2000 and Nasdaq 100 have all broken out of ranges, the Semiconductor Index has just consolidated.  Since topping out in March, is has moved mainly sideways in a narrowing range.   That might be about to change though.  After the latest move higher in mid-August, the Chips consolidated and then started to move higher again.  Continuation higher could be a big thing.

The chart below shows the recent action.  It has not been a bad consolidation, with the Index holding mostly over its 200 day SMA.  No deep corrections.  The first drop was nearly 17% but it still held over prior support.  Now moving higher it has falling trend resistance just above.  And a push through that gives a target to about 1525.  That woul dbe a new all-time high.

After an apparent breakout to all-time highs just 6 weeks ago, the semiconductor sector is now breaking key uptrend support.

In early March, we highlighted one of the sectors demonstrating the strongest recovery efforts following the post-January correction. The sector was the semiconductors, which was not a surprise since the group has been a leader for much of the bull market, especially in recent years. At the time of the March post, the big news was that the benchmark PHLX Semiconductor Index (SOX) had not only recovered its entire correction loss, but it was actually breaking out to new highs. Not only that, but its January highs also lay in the vicinity of its prior all-time highs, set 18 years ago in the 2000 dotcom bubble. Here is the chart highlighted in that post.

The breakout, if sustained, portended good things for the "chip" sector. It was not sustained. And that sound you hear are semiconductor investors' "chips" being sent back across the table because, as they say, from failed moves come fast moves. Indeed, it has not been a pretty course for the chips since as they have fallen hard. So hard, in fact, that if we fast forward to today, we see that the SOX has actually broken down below its post-2016 Up trendline.

Needless to say, this is not a welcomed development for the semiconductor group. The break of the trendline undermines the sustainability of the 2-year SOX rally -- or at a minimum, slows considerably the pace of advance. But how much of the potential damage is already done -- or, how much potential risk do we see here still? And is there any hope for semiconductor investors of the group regaining its leadership role.

In a Premium Post at The Lyons Share, we address those questions, laying out our strategy for the group, including specific levels to watch on the SOX.

If you’re interested in the “all-access” version of our charts and research, please check out The Lyons Share. Find out what we’re investing in, when we’re getting in – and when we’re getting out. And FYI, this is the BEST time to sign up as we have a FLASH SALE GOING ON THROUGH TODAY! Thanks for reading!

_____________

The stock of Intel has been a leader in the broad market as well as the semiconductor sector of late; however, it may be facing some chart resistance stemming from past demons.

One of the red hot sectors in recent days, weeks, months and years has been semiconductor stocks. It came into the recent correction as a relative strength leader — and, as noted in a recent post, has emerged from the correction period with that leadership role intact. One of the biggest players in that space is obviously Intel Corp. (INTC). And while the stock has been on a good role of late, it may be running into a bit of a speed bump — or roadblock — on its chart.

For millennials, INTC was one of the high flyers back in the late-1990’s dotcom boom. Of course, it was also one of the poster children for the bubble that burst in 2000. And, like many of its contemporaries, ITNC took a long time to recover from the post-2000 selloff that unfolded. In fact, it is still recovering, as INTC still remains well below its 2000 highs.

It hasn’t been all bad, though, for INTC over the years since bottoming out in 2009. Like the recent period, the stock has enjoyed extensive rallies along the way. It’s just that it has run into periodic resistance over that time. And specifically, the stock has tended to find resistance at key Fibonacci Retracements of its 2000-2009 decline.

After topping out near $75 in 2000, INTC dropped all the way down to $12 at its low in 2009. In early 2012, the stock would reach the 23.6% Fibonacci Retracement of the 2000-2009 decline, near the $27 level. It was promptly rejected there and, in fact, would not exceed the level for more than 2 years.

By late 2014, INTC reached the 38.2% Fibonacci Retracement of the 2000-2009 decline, near $36.40. It was again rejected and was unable to overcome that level for more than 3 years. Finally, this past October, the stock broke out above $36.40 and proceeded to run higher. In the past few days, the stock has arrived at the next, and most important, stop on the Fibonacci path: the 61.8% Retracement, near $51.50.

Will Intel be rebuffed at this level as it has been at the previous levels in the Fibonacci Retracement sequence? Once again, we don’t have a crystal ball and there are no guarantees but — that is the trend. And in our experience, 61.8% is the most important and most consistently relevant level to contend with. Thus, it would not surprise us to see INTC struggle at this level for an extended period of time. Furthermore, while the semiconductor sector is more than just one stock, a sputtering Intel would take away one of the important drivers of its recent rally. And while, technically, the semis are still on sound footing, it could make for a more uneven ascent for the sector.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

_____________

My Daughter is the socks queen.  She wears them to bed, all around the hose and with few exceptions all summer long.  She gave everyone socks for Christmas.  Mine have polar bears on them.  She does not like stripes on socks.  That is like giving up on the creativity.  She is a sock connoisseur.  I believe she would like the socks above.  

While I enjoy wearing my polar bear socks, I an a connoisseur of a different kind of socks.  The socks I follow is the Philadelphia Semiconductor Index or SOX. I like the look of this SOX even better than the one's my daughter gave me (don't tell her).  The chart below shows the reasons why.

Coming into year end the equity markets are at all-time highs, the crypto markets are acting like super heroes and Oil is holding up at 52 week highs. Everything is great. Except for the chip stocks. Don't get me wrong, the Semiconductor Index (SOX) has had a great 2017. But the last 3 weeks the SOX has looked like it blew a hole out when they were putting on their socks on a snowy morning.

The SOX has pulled back over 15% in that time. Is it temporary? The chart gives some place and price levels to watch to help figure this out. Measuring the move from the September pullback to the peak in November sets the range. Since then it has retraced 61.8% of the move higher and crossed down below the 50 day SMA. A bounce last week brought it back to the 50 day SMA and the 38.2% retracement level where it stalled and reversed. Now it is back lower at a 50% retracement of the move up.

This creates a lower high if it does not reverse. A sign that the downturn is not over. A move below the 61.8% retracement at 1206 would confirm that with a lower low and look for continuation to 1122. Notice that momentum turned bearish but never went extreme. That also bodes for more downside. The RSI has leveled in bearish territory while the MACD is slowing its descent as it moves negative. The Bollinger Bands® are also open to the downside. Keep an eye on this range, 1206 to 1258. Above it all may be well. Below it downside continues.

My Gift to You!

Between now and Christmas Eve, Dragonfly Capital Premium is 20% off for an annual subscription. That is only $600 for a year of Weekly Macro Analysis, 52 weeks of Top 10 Trade Ideas with analysis, triggers, stops and risk management, and 4 seasons of Daily Earnings Trades! And this gift keeps on giving. Renewals will also continue at this 20% off rate.

We end the week with a long term view on the Semiconductor Index. These stocks have been driving a lot of the gains in the market the last few months, outside of the FAANG favorites. The Index has moved relentlessly higher since the early 2016 low. But is it time for a dip to follow that advance in the chips? The chart below suggests there is still a lot of room to run.

This chart shows the monthly price action for the Semiconductor Index over the past 20 years. There are 5 items that need to be noted on the chart. The first is the Shark harmonic pattern playing out. The two triangles show the the extent of the pattern, with its Potential Reversal Zone (PRZ) at 1175. This would be a 88.6% retracement of the drop from the Tech bubble high to its low. But the Shark also has the potential to extend to a 1.13% retracement. That would give a PRZ II at 1440. Either one still leaves upside.

The second item to note is the 3 Drives pattern that has been playing out since the 2009 low. Less noticeable from the log scale on the chart, the legs higher have been 161.8% extensions of the previous leg. This would put the pattern completion at 1240, right between the two PRZ's of the Shark from above. The dotted line marks the top of the 2000 high area when you remove the intra-month spikes that retraced, like a long term resistance. That is the third item. It sits at 1190.

The last two items mark the momentum in the Index. The RSI at the top of the chart is running very hot. A reading over 80 shows strong momentum when it is on a monthly chart, and that is what we have seen in the Index. Rather than being an overbought signal it is a sign of strength. And it has been higher than this for longer. The MACD at the bottom of the chart gives some perspective here. It is higher than it has been in 16 years, but it is still far short of the peak in 2000. there is room to move higher.

Semiconductors may be on the last legs of a move higher. I do not know, no one does. But there is still room for that leg to move a lot higher before any indication of a reversal. Wait for confirmation and enjoy the ride.

While so many people seem to be focused on the major US Indexes like the S&P500 or the Dow Jones Industrial Average reaching the irrelevant 20,000 level, I prefer to focus on individual stocks and sectors. There are areas of strength, like Technology obviously, and areas of weakness like Healthcare and Consumer Staples. Stocks are like investors, there are winners and losers. I prefer to be a winning investor focused on winning stocks, wouldn’t you? Today we’re taking a look at Technology as it quietly breaks out again to new highs.

First, here is the Technology ETF $XLK breaking out last July above the key $44.75 area that represented overhead supply over the prior year. The trade has been to be long Tech if we are above that level and we continue to grind higher. The answer to the question, “How high can it go?” seems to be back to the all-time highs in March of 2000: $65. Why not?

Momentum is in a bullish range and prices are above key resistance. We want to continue to be a buyer of any weakness in Technology.

We want to look at Semiconductors as a leading indicator for Tech as a group. Here is the PHLX Semiconductor Index breaking out to new 16-year highs this week. If Tech as a group is going to to retest those all-time highs from March of 2000, I would expect Semi’s to do the same. This is going to continue to be our tell. If we’re above 908 in the Semiconductor Index, we want to continue to err on the long side of chip stocks:

I think we’re heading back up towards 1366 in this index. The line in the sand is very clear.

Finally, here is one of my favorite charts in the space. This is Technology relative to the S&P500 breaking out of a decade and a half long base. “The bigger the base, the higher in space”, is how I learned it:

If all of the stars are aligning: Tech breaking out, Semi’s breaking out and Tech breaking out on a relative basis, it’s hard for me to argue against a final leg higher in this space to retest the all-time highs from March of 2000.

When you talk about the individual components in the Tech sector, it’s not like they’re breaking down. To the contrary, Apple $AAPL is going out at new 52-week closing highs, Microsoft $MSFT is at new all-time highs, Google $GOOG is at new all-time highs, Facebook $FB is flirting with new all-time highs and Cisco $CSCO and Intel $INTC are coming out of decade plus long bases.

The largest components are suggesting that these are all in uptrends and the indexes that track them are confirming both the absolute and relative strength in Tech. Until something changes, I’m not going to fight this trend.