Skip to main content

Semis on the mend?

Many observers have noted that semiconductors led the recent rally but have lately been underperforming. Are semis in a downtrend or are they on the mend?

Tracking an ETF --

Here is a screenshot I grabbed from the TradeRadar software. It shows the SELL signal analysis for the iShares Semiconductor ETF (IGW). Note that the SELL signal (in the bottom chart) has not been consummated. In the top chart, the price is well above the trend line and is now solidly above the 20-day moving average. If this ETF can't dip significantly below even the 20-DMA, it is hard to say that semiconductors are in too much trouble.


Tracking a couple of bellwethers --

It is a common technique to look at the performance of a couple of bellwether stocks in order to judge the state of an industry sector.

A week ago, Intel (INTC) announced that their outlook for the second half of 2009 was measurably better than what had been communicated in earlier forecasts. That good news was enough to incite a rally in tech stocks and semiconductors in particular.

Today there are two pieces of data related to a company that partners with Intel: Taiwan Semiconductor (TSM). TSM is one of the biggest contract manufacturers of semiconductors in the world so what they have to say can be significant.

Today, Barron's Tech Trader Daily blog featured a post titled "Some Chip Makers Cut Wafer Starts." The post highlights TSM and says that a number of U.S. chipmakers have reduced orders. Offsetting this, however, the author quotes an article from DigiTimes that says TSM is getting greater volume from several other semiconductor houses. He wonders whether this is a result of poor demand on the consumer side.

TSM itself says that it is seeing better than expected sales demand in the third quarter. The company is sufficiently bullish that it has increased its capital expenditures twice. An analyst at Barclays estimates that a projected 20% increase in sales is on the way to becoming a 25% increase. In terms of product mix, it appears that computing/graphics chips are showing the greatest demand, followed by communications and then chips for the consumer market. This seems to confirm the suspicions of the Tech Trader Daily blog that the consumer, especially in the U.S., is lagging.

In the meantime, TSM is proceeding with their technology roadmap, moving to smaller chip geometries. This is meaningful because the more advanced chips can command a higher average selling price.

How to play it --

Charts look good and bellwethers are signaling better times ahead. Now is not the time to give up on the semiconductors.

There are several ETFs that track the sector but the two that I follow are the iShares ETF with symbol IGW (highlighted in the chart above) and the ProShares Ultra ETF with symbol USD.

Disclosure: long USD
Labels:

Comments

Post a Comment

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation
4 comments
Read more

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional
20 comments
Read more

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas. Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what
11 comments
Read more