SEMICONDUCTOR HOLDERS PULLED HIGHER BY INTEL AND TEXAS INSTRUMENTS
SEMICONDUCTOR HOLDERS NEAR 2005 HIGH ... As a follow-up to my earlier message on the improving performance by the semiconductor group, I'm going to focus this report on the Semiconductor Holders and a couple of big stocks pulling it higher. Chart 1 shows the Semiconductor Holders (SMH) trading within a point of a new 2005 high. Needless to say, a decisive close over 35.00 would constitute a bullish breakout by the ETF. One of the important ingredients in this rally that was lacking in March is upside volume. That's shown by the On Balance Volume (OBV) line below the chart. The OBV is a running cumulative total of upside versus downside volume. [Volume is added on up days and subtracted on down days]. The OBV barely rose during the March price rally and no doubt contributed to the failure of the SMH to break through its late 2004 peak. On this rally, however, the OBV line has moved up with the price action. That makes this rally much stronger than the last one and increases the odds for an eventual upside breakout. The SMH is much closer to its 2005 high than the SOX Index itself. That's mainly due to upside breakouts by two of its biggest stocks.
Chart 1
THE TWO BIGGEST STOCKS ACHIEVE BREAKOUTS ... The two biggest stock holdings in the Semiconductor Holders are Intel (22%) and Texas Instruments (15%). And it just so happens that both of those stocks have already achieved upside breakouts or are in the process of doing so. Chart 2 shows Texas Instruments trading above its March high in today's trading which puts it at a new 52-week high. Even more impressive is the chart action of Intel. Chart 3 shows the big chip bellwether trading well above its early 2005 high. While the stock may look over-extended over the short-run, its longer-term trend picture looks promising.
Chart 2
Chart 3
INTEL'S WEEKLY TREND TURNS UP ... The weekly chart of Intel puts its longer-term in better perspective. The stock has broken out to the highest level in nearly a year. It's next upside test is the high of last spring near 28.50. The fact that the (blue) 10-week average has crossed over the (red) 40-week line is a positive sign. So is the recent upturn in its relative strength line. The Intel/SPX ratio is trading at the highest level since last summer after falling throughout most of 2004. Interestingly, the ratio bottomed at the same level as it did at the end of 2002 and the start of 2003. The monthly bars in Chart 5 show that the 2004 low point just below 20 was the same level that supported a late 2001 rally (see circles). The monthly chart also shows a potential move up toward the late 2003 peak just below 35. If Intel comes even close to that upper level, its size alone should give a big boost to the entire chip sector and the Semiconductor Holders.
Chart 4
Chart 5
KEEP AN EYE ON THE CHIPS ... On a short-term basis, the ability (or inability) of the semiconductor group to exceed its 2005 high may help determine the staying power of the current market rally. In my view, a bullish breakout by the semiconductors would prolong the market rally, while a failure to breakout would have the opposite effect. That's why the upcoming test of resistance by the SOX Index and the Semiconductor Holders bears close watching.
