At Tricio we like to look at charts in order to gauge market sentiment and investor action. The future is all about computer chips as far as the stock market has been concerned for some time now. The chart below is the Philadelphia Stock Exchange PHLX Semiconductor Sector index (SOX), which we covered in our Weekly Talking Points this week along with INTC.
The SOX chart below is a weekly semi-log chart in order to show percentage moves over the long-term. The index is weighted by market cap so NVIDIA, Broadcom, Advanced Micro Devices, Taiwan Semiconductor and Marvell Technology make up over 40% of the holdings. From a very simple trend following point of view, the SOX is in a broad uptrend. Current levels are a little bit frothy as the index is pressing above the long-term red channel top and is near the medium-term green channel top. This is not a reason to sell, just something to be aware of. The flat red line comes in near the 50-week moving average and is worth noting as near-term support to hold. Our view is that the SOX should be able to trend higher over the course of this cycle as the Fed lowers rates. As long as the US economy does not enter a recession, lower rates are generally beneficial for growth shares.
The chart below is the weekly chart of Intel (INTC) with the relative strength line vs. SOX on top (red line). This just shows that the share has really underperformed the index for some time – obvious but sometimes it is important to provide sector context.
One of the reasons that we highlighted the share in our weekly publication was that news flow around this chip powerhouse has been increasing. The fact that the falling share price is back to levels seen over a decade ago seems to have concentrated minds there.
The potential reversal pattern building on the chart is interesting, but catching falling knives is a difficult way for fund managers to make a living. Watch the 13-week moving average and the lines around the $25/$26 area as resistance to recover. If the share price can return above this area then a shift towards $29 (key gap on the daily chart) and then the 50-week moving average near $35 could follow. For investors on a one to three-year time frame, this might be an interesting development to keep an eye on.
Gerry Celaya
Chief Strategist
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