Semiconductors Make Technical Strides
- Posted by JC Parets
- on February 7th, 2012
The semiconductors are rocking and rolling.
They remind me a lot of a Devin Hester Kickoff Return. It all looks bleak and you don’t want him to return it because he’s 8 yards deep in his own end-zone. But he does it anyway. Then you have 10 angry guys trying to knock him down (and a kicker with no hope). Hester takes it out – he jukes left, spins right, breaks a couple of tackles and eventually gets past every defender. As he crosses mid-field there’s no one left in front of him – just a bunch of opposing players in defeat trying to catch up.
Well same thing with the Semi’s. In early October the Philadelphia Semiconductor Index was still making new lows. Meanwhile, the Relative Strength Index (RSI) was putting in a bullish divergence. This slingshot type action was the first thrust out of the end-zone. Then came that downtrend line (in green), or the first defenders. Once the $SOX got through that level it was all green until the 61.8% Fibonacci retracement from the February highs down to the October lows. A few weeks of consolidation here and the Semi’s got through. As you can see in the chart below, $SOX made new highs last week and are looking forward to those February highs from a year ago.
Today, Semi’s feel the same way Hester does when he breaks the kicker’s ankles around mid-field and there’s no one left between him and the end-zone. Can someone technically come from behind and catch him? Sure. Can semi’s roll over here and get back below that 61.8% fib retracement? Sure, anything is possible. But would I bet on either one of those to happen? Not really.
We look at Semi’s as a leading indicator. If there is demand for anything electronic, you’re going to need chips. That’s the bottom line. So if you see demand in chips (making new highs, breaking resistance), then we presume there is demand for electronics. This is a positive for equities as a whole. This is a bullish $SOX chart and it looks to me like it’s going much higher. To be safe, we want to see the $SOX stay above that 61.8% fib level around 415. When you think about it, we’re not at a bad risk/reward point here at 422 or so. As long as we remain above there, just picture Devin Hester doing the “Deion Sanders” down the sideline.
A lot of you football fans enjoy watching Hester do his thing in the NFL. But as a die-hard Miami Hurricanes fan, he’s been impressing me since he was just a pup putting on a show in the Orange Bowl. Here are a few highlights of him in Miami so you know what I mean. Seriously, make sure you watch this video. Incredible stuff.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) and is a member of the Market Technicians Association. More
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