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The Stock: iShares PHLX SOX Semiconductor Sector (SOXX-Q) Recent price: $52.38 (U.S.)
The Trend
Although the November retreat affected a broad swath of North American stocks, the technology sector still maintains relative price performance since summer's end. The S&P Technology index is in a Stock Trends Bullish category and features many areas of strength, including networking and software stocks. Semiconductor shares, quick to reflect the supply and demand dynamics of global information technology markets, are also attracting bullish players rotating into the space.
The stock of Broadcom Corp. broke out a month ago after the company announced third quarter results, and is now regaining new 52-week highs. Shares of circuit makers Qualcomm , Marvell Technology Group and Skyworks Solutions have handily outperformed the broad stock market over the past three months. Other chip stocks hitting highs include Texas Instruments , Cypress Semiconductors , Analog Devices Fairchild Semiconductor International and Triquint Semiconductor . Also strong performers in autumn trading are semiconductor equipment and materials stocks like Applied Materials United Microelectronics and Advanced Semiconductor Engineering The biggest name in the sector, Intel Corp. although lagging other semiconductor stocks, has lifted above its 40-week moving average trend line this month amid a solid 20 per cent gain since the beginning of September.
The Trade
Rebranded as the iShares PHLX SOX Semiconductor Sector Index Fund after the well-known capitalization-weighted benchmark for the industry it tracks, this exchange traded fund is probably the best place for investors interested in diversified exposure to the sector. The most actively traded basket of the sector is the HOLDRS Merrill Lynch Semiconductor Trust (SMH-N), but this static portfolio is heavily concentrated. Its top three holdings - Intel, Texas Instruments, and Applied Materials - have a 53 per cent total weighting. Those three stocks account for a more modest 24 per cent of the SOX index, so the iShares semiconductor fund fairly represents broader price movements of the industry - capturing more of the recent moves by Broadcom and Marvel Technology, for instance. Also, investors looking to capture tech sector performance in the expanding array of applications for chips - notably in lighting fixtures, solar panels, home appliances, and smart phones - can find representation in the evolving Philadelphia Semiconductor index. The index has a 5 per cent weighting of industrial stocks, including the LED chip applications of Cree Inc. and advanced electronics materials provider Rubicon Technology reflecting the reach of chips beyond the realm of the PC.
The iShares SOX ETF is a current Stock Trends Bullish Crossover stock, a signal that the autumn price trend has eclipsed a long-term trend represented in the fund's 40-week moving average. Although the ETF traded actively through October advances, its volume of trading slipped considerably amid broader market volatility this month. However, competing unleveraged ETFs in the group - the Powershares Dynamic Semiconductors Portfolio and the SPDR S&P Semiconductor Fund - are both considerably less liquid.
The Upside
With a broader stock market recovery the SOX index should regain its April high at 404.70, a 5 per cent move above its current level at 387. The iShares PHLX SOX ETF's price would scale above $55 by that advance in the underlying index. A return of trading volume should accompany that move, giving short-term traders a new bullish objective at $60.
The Downside
A less optimistic interpretation of the recent pullback in the SOX is that the sector is in a longer-term trading range and is at risk of further immediate declines. Swing traders anxious about that outcome will likely tag $50 as an exit trigger for the fund.
Skot Kortje has been analyzing stock market trends for 15 years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to Stocktrends.ca