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A Long Term View Of Semiconductor Stocks (SOX) at Trader’s Narrative

There was a chart request for the Philadelphia Semiconductors Index, otherwise known as the SOX.

The analysis is simple, but perhaps not too satisfying. This stalwart of the tech sector has been stuck in a meandering channel for more than five years.

The upper range is ~550 (resistance) and the lower range is ~360 (support) - where the index is now. During the wicked bear market of 2002 (and the early part of 2003) the SOX penetrated the lower range temporarily.

long term chart SOX semiconductors

The bear market panic low, near 200, revisited a level previously reached during the 1998 LTCM/Asian currency crisis low. If the channel support doesn’t hold, this is where we would be headed, ultimately.

But while the sideways channel may give us a picture of a sector that is treading water, a relative graph shows that this sector has been a consistent loser:

semiconductors relative to SPX long term

Semiconductors roared out of the bear market lows of 2003 leading the general stock market higher. But while other sectors went on to a continued cyclical bull market lasting multiple years, the SOX’s rally petered out in 2004.

Since then, they have never really taken the lead and instead have reached relative lows approaching those of 1998.

While value investors may be attracted to the valuation of semiconductor stocks, I would stay away from this sector until it can show that it has either broken down (offering shorting opportunities) or until it eventually builds a base out of all this sideways action and once again is ready to resume leadership of the market.

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