During this downturn, it is important to keep an eye on sectors that are displaying relative strength and bucking the downtrend or at least dropping less than the general market. One of the major sectors that has powered the cyclical bull market is the semiconductor group.
Since bottoming much earlier than the major indexes in November 2008, it has managed to rise 128% (at its high in April 2010). The last time I mentioned it was in September 2009 when it showed signs of tiring: Semiconductors Sputter.
Taking a look at the same chart I shared back then shows that the relative strength line did flatten out and fall during the rest of 2009 (but managed to recover at year end):
Being the high beta sector that it is, the SOX index has managed to tack on a gain of +25% since September 2009 - compared to just 12% for the S&P 500 index. But the recent weakness in the stock market did take price below the uptrending channel (blue lines). The one saving grace semiconductors can lay claim to is that their relative strength line continues in an uptrend. It is now much less steeper than it was, but it is still unbroken and trending higher.
As well, by maintaining its level above the February lows, it is still within the definition of an uptrend: higher highs and higher lows.
If the SOX can manage to climb back into the channel lines and take on the area of resistance that pushed it back several times, it will be able to mount a serious assault to higher levels. If you are going to be long, you might as well the long the strongest stocks in the strongest sectors.
Here are the components to the Philadelphia Semiconductor Index:
- (ALTR) Altera Corporation
- (AMAT) Applied Materials
- (AMD) Advanced Micro Devices
- (ATHR) Atheros Communications
- (BRCM) Broadcom Corporation
- (CREE) Cree
- (INTC) Intel
- (KLAC) KLA-Tencor
- (LLTC) Linear Technology
- (LRCX) Lam Research
- (MRVL) Marvell Technology Group
- (MU) Micron Technology
- (NSM) National Semiconductor
- (NVLS) Novellus Systems
- (SNDK) SanDisk Corporation
- (STM) STMicroelectronics
- (TER) Teradyne
- (TSM) Taiwan Semiconductor
- (TXN) Texas Instruments
- (WFR) MEMC Electronic Materials
- (XLNX) Xilinx
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