Semiconductor Sector Analysis

In this post I do a complete Semiconductor Sector Analysis including 26 annotated charts giving you key levels, targets, and trade ideas.

Semiconductors, Technology, and my approach to trading

Historically, semiconductors have been referred to as the “canary in the coal mine” for technology. I have no reason to doubt that assessment. But with that said, I try not to make grand proclamations about such things. I’d rather simply look at the price action of a given sector or security and base my assessment and conclusions strictly on that.  If semiconductors end up being either being a drag or lifting technology, I will see it in price.

Semiconductors ( $DJUSSC ) are a large part of the technology complex. If you’d like to see all of the individual stocks within the $DJUSSC industry group, you can find them HERE. The performance as a group will either be a tailwind, headwind, or neutral factor in how $XLK / $QQQ perform as a whole.  So with that, lets see how the group and it’s components are doing.

The Big Picture for the Semiconductor Group Sector Analysis

Here is a weekly chart of the Philadelphia semiconductor index tracking ETF $SOXX. After a 2 year bull run out of the 2016 lows, we’ve been in consolidation mode in 2018. Note how price is narrowing down into the apex of a symmetrical triangle. Also note the Bollinger Band width indicator in the bottom panel. The Bollinger Band width is the tightest they’ve been in 40 months. This volatility contraction is a precursor to a volatility expansion. Said another way, a big move is coming.

$SOXX weekly chart

Looking at Individual Semiconductor Names

For the sake of space, I’ve uploaded my analysis of 26 individual stocks within the group. All the charts are annotated with key levels and in most cases price targets.   You can find the analysis HERE  

Thoughts on the Analysis

If you look back in time, both bullish and bearish moves in the semiconductor sector often lead the broader tech sector. In my opinion, the semi sector needs to, at the very least,  stabilize and hold for the overall health of Tech to be secure.

Sector heavyweights NVDA and TXN are outperforming by simply not going down. Watch them very closely. INTC and MU are already in full bear mode. If TXN and NVDA roll over it will be very bearish for group.

The Bollinger band contraction on $SOXX to the tightest level in 40 months is notable. When it expands we don’t know if it will be an upside or downside move, but I do know it will be a meaningful move. Watch for a breakout or breakdown through the narrowing triangle on the chart.

Caution: Just because there are a lot of bearish set ups, please don’t go out and short 10 semiconductor names. We remain in an overall bull market. Keep your position sizes reasonable and in balance with the rest of your positions.

Technical Tips and Take – aways

Tip 1: Pay attention to divergences

When you see divergent highs coupled with major trend line breaks, take note and action. They often mark major trend changes; especially on a weekly chart.  Chart after chart  tell the same story time after time.

Tip 2:  Pay attention to changes in Momentum in long term charts

I did not get into it in this analysis but taking a look at the monthly charts is often very beneficial. And while there are no absolutes, when you see either a bullish or bearish cross on PPO / MACD momentum, it often marks long term changes in trend. In the case of weekly charts, those trend changes often last months. For monthly charts, often years.  Important information to consider.

Tip 3: The Relation of the RSI / Momentum to their center lines

When  looking at charts, note the position of the RSI indicator in relation to the 50% line and the  momentum indicator ( PPO or MACD ) in relation to the zero line. When these indicators are below their center lines more often than not, price is in bear mode. If both are above, bull mode. Fold these facts into your decision making process and I believe it will be helpful.

For further reading

RSI and PPO are two of my go-to indicators for decision-making.

Find out more about the PPO indicator HERE 

More on the RSI indicator HERE

I hope you found the semiconductor sector analysis helpful. It is a big component within technology. This sector will have a lot to say about where tech goes in the months ahead. And don’t forget about those tightening Bollinger Bands. A big move is coming!!  Be ready to take advantage of it!

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Happy hunting and good trading

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