My first Sector I blogged about was India which did very well over the next month. Then came grains which also ran nicely after that post. This weekend the semiconductor equipment manufacturers are in my cross hairs. Sometimes a few data points will get stuck in your head and they wake up some others that you may have been accumulating without realizing it.
About 2 weeks ago when everyone was gaga over Google I remember tweeting out a chart of the SMH mentioning that we shouldn’t overlook whats going on in the semis and how they were poised to move up. Well I forgot about that tweet until last evening when I had StockTwits TV tuned into Brian Shannon’s Friday evening wrap up. He posted a chart of the SMH which stirred up a lot of thoughts I have had over the past couple of weeks. Lets have a look at the SMH. It has a cup and handle formation coming up out of a bull flag pullback to the 20 ema and about to break a 4 month resistance line (wow that’s a lot of technobabble). The 52 week high is less than 10% overhead as a first target of this move.
From where I sit this looks like a very nice setup. If you are in the camp that says the NASDAQ is going higher, you need to look for a sector that will be behind the next push. There has been lots of attention on Google and AAPL and the Networking companies but the semis seem to have taken a back seat with Intel only now starting to claw its way from its post earnings gap down.
So, what else caused me to look at the semis a little closer. Well, one thing that has stuck in my head was that I have heard on conference calls from CSCO and AAPL that they are having supply issues that constrain their ability to meet demand. This article from Venture Outsource mentions the same and also cites TabletPC’s and Smartphones being a distruptive factor increasing demand faster than was planned:
“Over the last six months, technology companies like Dell, Nokia, and AT&T Mobility have announced adverse impacts on their respective abilities to meet consumer demand due to semiconductor chip shortages.
Shortages have also adversely affected financial performance of the above companies the last two quarters.
Chip shortages have also affected vendors’ abilities to deliver equipment to carriers like AT&T Mobility resulting in AT&T Mobility being unable to upgrade its network quickly enough to meet consumer cries for better performance, all of this taking place in the world of semiconductor manufacturing – a cyclical business requiring long lead times.”
Two weeks ago Gartner said ” The automotive semiconductor market is expected to grow by 36.4% in 2010, to reach $21,364 million, in sharp contrast with the 21.7% decline in 2009. ”
I’m not an analyst and all of the data I am mentioning is qualitative and I may be totally off base but whenever I get a feeling about something I need to keep a watch on it.
OK, if you do your own work you can search for a list of SMH components and chart them all up and chase the ones that are running higher. For me, I prefer to focus on a smaller universe so I’m going to focus in on a sub theme of the Semiconductor Equipment Manufacturers as the laggards that will steadily catch up. Again, two things that spin in my head is Intel announcing they are spending $6-$8 Billion in a new manufacturing facility in Oregon and a friend (@szaman on StockTwits) pointing out the chart of LRCX. Lets start with a multi timeframe look at LRCX
Needless to say I really like this stock. Here are a few more..I am posting weekly charts to give a better look
That’s what I will be watching over the next month. I hope it gives some food for thought. Good trading!