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Stocks Ready for an Explosive Breakout

By Jeff Clark
Thursday, October 11, 2007

The stock market is semi-bullish.
 
We've seen a huge advance over the past few weeks. And that creates a problem for anyone looking to put new money to work in a low-risk idea. But the semiconductor stocks have lagged behind, and that's actually a good thing.
 
Take a look at the following chart comparing the performance of the Philadelphia Semiconductor Index to the Nasdaq 100...
 
When the chart is rising, it indicates a period when the semiconductor sector is leading the market higher. When the chart is falling, it shows periods of underperformance. The recent "waterfall" look of the chart tells you all you need to know about the current action.
 
Semis just haven't kept up with the rest of the market.
But that's about to change.
 
Semiconductor stocks typically perform quite well during the last part of the year. But this year has the potential for something explosive.
 
Chip stocks are on the verge of breaking out of a six-year-long consolidating-triangle pattern. I've shown the following chart a few times before, and it's worth another look...
 
We're getting closer and closer to a decision point, and when this pattern finally breaks, it's going to project a move of almost 200 points in one direction or the other.
 
My bet is it'll be to the upside.
 
Semiconductor stocks are as cheap as they've been in a long time. Many companies are trading near the low end of their historic valuation ranges, are sitting on piles of cash, and have little or no debt.
 
Plus, investor sentiment on the sector is as bearish as ever.
 
It's tough to jump into the stock market right now after such a huge run-up in such a short time. But you can't argue with the fundamentals of the semiconductor sector. And the technical conditions are just now falling into place.
 
If the semiconductor stocks can start to rally, then there just may be one more good push higher for this tired, old bull market.
 
Best regards and good trading,
 
Jeff Clark




Market Notes
Gold approaches $750 again... Kinross Gold, Freeport McMoRan, Goldcorp, Agnico-Eagle, Barrick Gold, Meridian Gold, Great Basin Gold, Northern Orion, and NovaGold at fresh highs.
 
Big Tech continues its advance... Oracle, EMC, and Cisco reach new 52-week highs.
 
Health care companies jump... Humana, Aetna, and WellCare Health at new highs.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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