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

Time to be conservative with your 401K

Most of the posts I and other financial bloggers write are typically focused on individual stocks or ETFs and managing active portfolios. For those folks who are more conservative investors, those whose main investment vehicle is a 401K, for example, the techniques for portfolio management might be a little different. The news of stock markets falling and pundits predicting recession is disconcerting to professional investors as well as to those of us who are watching our balances in an IRA or 401K sag. What approach should the average 401K investor take? Let's assume that the investor is contributing on a regular basis to one of these retirement accounts. There are two questions that the investor needs to ask: 1. Should I stop putting the regular contribution into stocks? My feeling is that investors making regular contributions are being handed a present by the markets. Every week the market goes down, these investors are lowering their average cost. When markets reco...
7 comments
Read more

The Trouble with Trend Reversal Indicators

Many of us use various trend reversal indicators to time our trades. Our desire is to determine when prices have changed direction so that we can ride the new trend. Why doesn't it always work out? The first reason, of course, is that unforeseen events often drive prices in unexpected directions. That is something we can't change and it often makes all of us technical traders crazy. On the other hand, sometimes an unforeseen event is a prelude to a new trend. A stock spikes up on a what seems to be a one-time piece of good fortune and soon falls back. Does it start making its way back up or does it resume a previous down trend? The conflict within trend reversal indicators is that, though they can definitely tell when prices change direction, they suffer from two problems. One, they often can't determine how significant that move in prices actually will be. Two, they are often lagging indicators. As such, they can be late in providing a signal, sometimes leading the investo...
1 comment
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...
6 comments
Read more