• Trading 101: Analyzing the Semiconductors

    by  • March 8, 2013 8:12 am • Trading 101 with Peter Bryans • 0 Comments

    There is a lot of sector rotation going on underneath the surface on a daily basis, and many are calling it a “stock picker’s” market. With all of the talk about the Dow making new all-time highs, one of the indices that I believe has been somewhat “under the radar” is the Nasdaq Composite. Glancing at the monthly chart below, you can see that the 3,200 level was surpassed and that the tech-heavy index is also making new highs. Now, we are nowhere near the March 2000 highs, but the index has made a substantial recovery.

    (chart courtesy of eSignal–click to enlarge)

    Having established some awareness for some tech names that are doing well, there is a particular area of interest that I have touched on before. The semiconductors have been on a major run since the latest market correction that ended in November of 2012. If you look back at my post from early November, I was looking at a weekly chart of the semiconductors ETF—the SMH. More specifically, there was a particular chart pattern known as a “symmetrical triangle”, where I noted how the sector may be at a critical juncture.

    Featured below is that same chart with some additional notes. You can see that at the apex of the pattern the semiconductors made a major upside breakout. Many major players—Broadcom (BRCM), Applied Materials (AMAT), and Texas Instruments (TXN)—have had some stellar runs. Certain names have been particularly strong. Further analysis of this sector raises the obvious question: do the semis have more room to run?

    (chart courtesy of eSignal–click to enlarge)

    As I have noted above the horizontal line drawn at the $37 level, this could be a key point of resistance that, when broken, would lead the semis surging higher. This level looks to be of interest as it is the site of a prior “double top” formation—SMH approached this level (and was rejected) in early 2011 and then again in July 2011.

    In my opinion, the semiconductors have been one of the least talked about sectors/industries in the market. Many are quick to point out the strength in Financials and Transportation stocks as of late, but a breakout in SMH could see some new names come into play. Featured below are some of those charts. Good luck trading.

    Texas Instruments (TXN).

    (chart courtesy of StockCharts.com)

    Applied Materials (AMAT).

    (chart courtesy of StockCharts.com)

    Broadcom (BRCM). Underperforming, but could establish support above 200-day moving average (red line) and move higher.

    (chart courtesy of StockCharts.com)

    ASML Holdings (ASML).

    (chart courtesy of StockCharts.com)


    Peter Bryans joined the Schaeffer's Investment Research trading team as a Trader in April, 2012. A graduate of the Fisher College of Business at The Ohio State University -- where he concentrated in Finance -- Peter previously held internships with an insurance broker and a wealth-management firm. In his current role, Peter trades a variety of our real-time option services and also hosts our "Options Apprentice" weekly webinar presentations.


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