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The Semis Look Ready to Rally

By Jeff Clark
Tuesday, April 3, 2007

Semiconductor stocks, the most notable laggards of the stock market over the past four years, are going to lead the market to new highs later this year...
 
The underperformance of semiconductor stocks earlier this year was a major warning sign for the broad stock market. Now, however, the broad market has suffered through a correction – a correction that may not be over just yet – but the semis are displaying relative strength.
 
Look at this chart that compares the performance of the semiconductor index (SOX) with the performance of the broader tech market as represented by the Nasdaq Composite (COMPX)...
 
 
 
During periods when the chart is declining, such as from last May through last July, semiconductor stocks are weaker than the broad market. That condition usually results in poor stock market performance.
 
When the chart is rising, such as the period from August through September, semiconductor stocks are stronger than the broad stock market. This action typically occurs during strong stock market rallies.
 
Notice the recent spike higher in the chart. Semiconductor stocks held up well compared to the rest of the market during the recent correction. That's no great surprise. Investors were simply selling stocks and locking in profits on positions that had moved up sharply.
 
Since the semiconductor stocks had lagged so badly, the sector was already sold out.
 
What is particularly interesting, though, is how the chart has broken above its downtrend resistance line. This action very likely signals a new period of outperformance for the semiconductor sector... and is a bullish sign for the stock market. After all, if semiconductor stocks run higher, then the rest of the market will follow along behind.
 
Over the past two weeks, the chart has come back down to retest the broken downtrend resistance line. This sets up a good low-risk/high-reward opportunity for conservative investments in the sector.
 
Best regards and good trading,
 
Jeff Clark




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%