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Semiconductors Emerging As Leaders

Posted: Jul 15, 2009 14:11 PM by Joey Fundora

Tickers in this Article: SMH, INTC, MCHP, ONNN

The semiconductor group as a whole has been one of the best performing groups this year. These stocks didn't plunge to new lows in March along with the general markets, and recovered to set higher highs in April. As a whole, they have continued to show outstanding relative strength against most other sectors in the stock market and after a positive reaction to an Intel Corporation (Nasdaq:INTC) earnings report on Tuesday evening, it looks like they may be ready to resume their intermediate uptrend.

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IN PICTURES: 7 Tools Of The Trade

SMH Shows Resilience
The Semiconductor HOLDRS ETF (AMEX:SMH) is a popular exchange traded fund that tracks the semiconductors. SMH is a great vehicle for trading the semiconductors as a group, rather than trading individual stocks. Notice how SMH has been above a rising 50-day moving average since March. It cleared a base in April and held above it on several tests. It also has been resilient over the past week as the markets threaten a reversal. If it can clear the $22 level, it may pave the way for an extended move higher.

Source: StockCharts.com

Intel Acts as a Catalyst
Intel Corporation (Nasdaq:INTC) may be the catalyst for a rally in the semiconductors. INTC was trading 7.5% higher on Wednesday after reporting results and an outlook that exceeded expectations. Several other semiconductor stocks were also trading higher in sympathy, which may spill over into others in the industry over the next few days. The INTC chart is very similar to the SMH chart, which is to be expected with INTC making up such a large part of SMH's holdings. The overnight gap has sent INTC above the consolidation range that has been established from April through July. How well it holds this move will be very telling for not only INTC, but the group as a whole.

Source: StockCharts.com

Microchip Is One Tough Cookie
Microchip Technology Inc. (Nasdaq:MCHP) is another semiconductor stock that has a bullish looking chart. MCHP was able to clear a base in March and continued to rally for several weeks after that. It did suffer a sharp pullback in May that threatened to nullify the prior breakout, but it held support, and actually bounced back quickly. MCHP has been following the 50-day moving average recently as it consolidates further, and it is attempting to clear a descending trendline that framed out the recent trading range.

Source: StockCharts.com

ON Target
ON Semiconductor Corp. (Nasdaq:ONNN) is a semiconductor stock that has been trading steadily higher since March. It has been trading in a tight consolidation range over the past two months, and is close to testing a breakout. (For further reading, check out our Industry Hanbook.)

Source: StockCharts.com

Bottom Line
It will be interesting to see if the semiconductors can spark renewed interest in the markets from the bulls, as the general markets have recently been threatening a reversal. Tech stocks and semiconductors in particular have been one of the bright spots for 2009, and it's very possible that this group is emerging as a new leader in the markets.

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At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.

By Joey Fundora

Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.

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