There has been increased focus on the semiconductor stocks since Micron Technologies (MU) plunged in reaction to their earnings. In the month since the earnings report MU did rebound briefly has but the stock is now down 14% from its high.
In my June article “Why I Sold Micron Technology Before Earnings,” I reviewed the technical reasons why I advised selling MU on June 26 at $32.45. The increased volatility in the PowerShares QQQ Trust (QQQ) over the past few weeks has many wondering whether the semiconductor stocks have completed a major top.
The two largest semiconductor ETFs are the iShares PHLX SOX Semiconductor ETF (SOXX) and the VanEck Vectors Semiconductor ETF (SMH). Based on the average volume of 3.1 million shares, SMH is more liquid than SOXX, which has an average volume of 572,000 shares.
In reviewing and recommending ETFs in my Viper ETF Report, I look at the volume, expense ratio and holdings. Their expense ratios are similar but SOXX has a few more holdings with 9% in NVIDIA (NVDA) and 8.3% in Broadcom (AVGOA) as the top holdings. Taiwan Semiconductor (TSM) makes up 12.3% of SMH and it also has a 11.2% holding in Intel (INTC).
Therefore, I favor iShares PHLX SOX Semiconductor ETF (SOXX), which gained 4.8% in July but was still below the June high of $155.57. Based on the monthly chart the June low at $138.23 is first support with further at $134.92 which was the May low. There is long term chart support at $118.91, line a, and the rising 20 month EMA.
The monthly relative performance (RS), which compares the performance of SOXX to the S&P 500 or the Spyder Trust (SPY), made a new high in May and is still in a clear uptrend. It completed its bottom formation last July, point 1. The on-balance-volume broke its downtrend, line b, at the same time. It has made a new high with prices and is well above its WMA.
The weekly chart of the iShares PHLX SOX Semiconductor ETF (SOXX) shows that it formed a doji two weeks ago (point 2). It is currently trading below the doji low of $147.51 and a Friday close below this level will trigger a weekly sell signal. The quarterly pivot is at $142 and a weekly close below this level may signal a change in trend. (For more on quarterly pivot analysis, you can see my article “Investors Should Follow The Quarterly Trend.”)
The 20 week EMA is rising at $141.81 with the March high at $137.26. The lower weekly starc+ band is at $135.39. The weekly RS will drop below its WMA with a lower close this week. This is also the case for the OBV and it has formed a negative divergence (line e), as it has made lower highs while SOXX made higher weekly closes. A drop in the OBV below the support at line f will confirm the divergence.
The daily chart the iShares PHLX SOX Semiconductor ETF (SOXX) appears to have topped last week with the high of $151.65. In mid-day trading on Wednesday, SOXX is trading below the 20-day EMA and the lows of the last two weeks. There is monthly pivot support at $139.59. If the decline from point 3 is equal to the decline from point 1 to point 2, the downside or equality target is at $134.31.
The daily RS has dropped below its WMA and once below the early July lows there is next good support at line a. The OBV has been weaker than prices on the recent rally as noted by the steep downtrend in the OBV, line b. The daily OBV is starting to lead prices lower.
The Direxion Semiconductor Bear 3X (SOXS) is a triple inverse ETF with an average volume of 360K. It formed a doji last week and a weekly close above $27.45 will be positive. The downtrend, line c, and the daily starc+ band are at $29.31. The monthly pivot resistance is at $32.48 with the early July high at $33.69. The 20-day EMA is at $27.48 with the potential double bottom support in the $25 area.
The daily RS is back above its WMA but needs a move above the downtrend, line d, to signal that it is outperforming the SPY. The OBV is acting much stronger as it has surged in the last week with good support now at line e. The weekly OBV (not shown) has formed higher lows and is back above its WMA which is a positive sign.
Are the semiconductor stocks completing an important top? The technical evidence suggests that a major top has not been completed as the monthly technical studies are strongly positive and made new highs last month.
A more likely scenario is that the SOXX is undergoing an overdue correction as a pause in the major trend. These are referred to as continuation patterns which in an uptrend serve to relieve a market’s overbought status and reduce the too high bullish sentiment. Such a correction could take the SOXX back to the May high or the equality target at $134.31. This is just over 8% below current levels. A close in SOXX above $152.50 will indicate the uptrend has resumed.
If you would like to learn more about the markets while you are getting specific buy/sell advice, you might consider the Viper ETF Report or the Viper Hot Stock Reports. There are a number of semiconductor stocks in the Viper Hot Stocks scan.
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