Semiconductors: Separating the cream from the milk.

Have the chips seen their worst days? Is cash starting to flow into the sector as a whole or simply over-weighed to a couple of stocks,  Or are seeing smart money buying a few select stocks in this group in front of a potential expansion in wireless technology and devices other than traditional hardware.

Look at the top holders in terms of percent ownership in the Exchange Traded Fund, SMH. Let’s compare who leading and who’s not invited to the next bull party in technology.

Top holders down to 2.5 %: I listed only these so we can get a good understanding of what is driving the move off the lows in the semiconductors and what can keep the momentum going, if anything, even as AMD and INTC can’t catch a bid.

Percent of SMH holdings down to 2.5%:

INTC – 18%                                           AMAT – 4.43%

TSM – 15.97%                                       ALTR – 3.81%

TXN – 7%                                               XLNX – 3.87%

ARMH – 6%                                           MXIM – 3.07%

ASML – 5.4%                                         AVGO – 2.93%

BRCM – 4.58%                                       KLAC – 2.87%

ADI – 4.47%                                            NVDA – 2.64%

AMAT – 4.34%                                        LLTC – 2.57 %

SMH seems to be working its way off the 30 floor from mid November levels thanks in part to INTC making new lows on the year. We can see repair work is under way as the RSI shows divergence from 10/12 to 11/16.

As of today, SMH moved to the 50 ema at 31.50. Next resistance level should prove to be a hard level to breach since dips are bought and rips are sold. The 200 ema is at 32.09 and is the best close since September at the 32.32 high (posted on 11/06) . I feel this can be tested so long as SMH can close above 31.73. At this point, dips should be scooped up at higher levels.

TSM has enjoyed a nice move all summer off the lows as the 2.99%. A nice dividend has helped this to hit new highs propping SMH. Note: Paying a 2.99% dividend at these levels. One red-flag note is the RSI is not quite showing the same strength as price action is.

I wont post INTC, but SMH holds 18% and we want to see if any new buying comes into play for INTC between now and Mid January. Basically, look for some relative strength in INTC if the $SPX wants to test November lows?

ARMH posed strong earnings and off to the moon it goes. The October breakout above 29 was huge with classic range expansion and almost no pull backs. Forcing buyers to pick higher levels.

ASML is no slouch either as the 200 ema was pierced for only session then it was off to the month range highs where we sit at mid 57 levels. This looks poised to test 59.22. To days close of 57.86 matches the close of 57.87 on 09/06

ADI is holding it ground also here and should trade in the ranges between 38.72 and 41.14. Look for a close > 40.81 to bring the momentum players out and possibly test 41.32, 41.68 then break 41.80. If this can continue, it should test 45. Note: Paying a 2.97 % dividend at these levels.

KLAC is working off a typical Head & Shoulder which I wrote about two weeks ago. The stock never really came down to the extended potential target levels of 42 then 40 but it ain’t over yet. Poor RSI and a ton of over head keeps me away from any long in KLAC. This stock generally lags the group. Note: Yielding a 3.55% dividend at these levels so short sellers beware.

MXIM has been in this trading range for 8 months. With lows in September and highs in early November, we can see some moves off the 200 ema on 11/16 with the rest of the markets. It held this level and has moved sharply off the 26.79 ema support. a close above 28.82 and I can see more aggressive dip buying in MXIM to possibly test highs. Note: yielding a 3.39% dividend at these levels. Strong RSI seems to support the price.

We see TSM and ADI in the integrated circuits are both healthy where BRCM is lagging and not even mentioned here due to the poor performance. BRCM is a crowded AAPL trade I care not to take. To  many slaughtered bulls for now.

ASML and KLAC have held their own with KLAC lagging in the equipment and materials sub group. MXIM, like CY, INTC, ATML, AMD are broad-based but I like the relative strength in MXIM technically and when MXIM goes, it can go hard.

I like to view the semiconductor group as the black sheep of the tech stocks as a broad-based view of the $NDX. Sort of like the financials are to the $SPX. A lot of hope but rarely does it deliver the punch like it used to. But that does not mean we can’t pick some good stocks and highlight some potential moves for a play through next spring. My methods will be dip buying after strong moves and never chasing these stocks for any reason. I like to day to swing trade highlighted sectors when I feel money is transitioning into certain groups.

Nick Pirraglia

Disclaimer:  The material provided is purely for educational purposes only.The information provided is in no way investment advice from Nick Pirraglia, TradersThinkTank or any other contributed content. Nick Pirraglia is not a Registered Investment Advisor and under no circumstances should any content from this site be used as investment advice, recommendations, or trading advice.

About Nickolas Pirraglia

Nick Pirraglia started his career in trading in 1991 after returning to the US as an Army Officer deployed in Iraq. He began as a bond broker and worked his way into trading. Expert mentoring, hard work and a disciplined approach to the markets has allowed Nick the ability to maintain a very successful career in Capital Markets and Trading for over 20 years as a professional OTC Market Maker and independent trader. Nick has also managed the trading desks for a two Dallas based capital management companies and traded equities for a Dallas based hedge fund. Nick has trained and mentored thousands of customers in the rigors of trading, technical analysis and risk controls. Recently, Nick had broadened his market experience through the design and product management of two automated trading platforms. He has the pleasure of working with some of the brightest minds in the trading community and has collaborated with experts in data, design, engineering and trading psychology. An avid long distance runner, Nick completed several marathon events, qualified for the Boston marathon, completed several long distance Triathlons to include finishing a full Ironman triathlon.
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