I want to make something perfectly clear: Semiconductors breaking out of a 6 month base to new all-time highs is historically not a characteristic of a downtrend for semi’s, tech, or US Stocks as an asset class. These are facts. As go Chip stocks, so goes Tech. And in case you forgot, Technology is a quarter of the entire S&P500.
Feel free to argue against me on this. You’ll lose. Semiconductors going up is NOT bearish for stocks. In fact, I can think of few things more bullish.
Here is a Monthly Chart of the PHLX Semiconductor Index $SOX breaking out to new all-time highs:
Very simply, these are the types of charts we want to be buying. We’ll be wrong sometimes, and sure Semi’s could peak today and begin to crash tomorrow. Anything can happen. But if we make this bet 100 times, we’re going to be winning an awful lot. Think of it this way: do we want to be betting against these charts? I say ‘No sir’.
Here is the Semiconductor Fund $SMH breaking out of a bull flag to new all-time highs:
And here is the best part. Some of you might be thinking to yourselves, “You know, this might just be a top because it’s so over-valued”. And that’s a valid question. So let’s provide a solid answer.
Here is the Semiconductor Index relative to the S&P500. We’re only half way to where this was 20 years ago. If anything, it’s historically undervalued relative to where it has been. I still think we’re just getting started:
This is what we call the top down approach. Technology is a leader, Semiconductors are a leading industry group within Tech. Semi’s are showing positive momentum and relative strength. What’s not to like?
Now we break down the group into the best risk vs reward propositions. In other words, which stocks offer the best opportunity to take advantage of this trend? This way we have the wind at our backs, the probabilities in our favor, and our best chances of consistent success over time.
And even if you don’t care about Semiconductor indexes or this group of stocks, the sector matters. That you can’t argue with. Here is what Semi’s look like compared to the Global 100 Index. If I took out the labels and y-axis you couldn’t tell me which one was which: