Pull your SOXX up!

September 24, 2021No Comments

Hello, and welcome to the ValueTrend Wealth Management, Smart Money, Dumb Money Show. And I’m your host, Keith Richards. I’m President Chief Portfolio Manager of ValueTrend Wealth Management. And today we’re going to talk about pulling your SOXX up or let’s call it, put your SOXX on one of those two things. We want to talk about the semiconductor sector, which is just now about to enter into its period of seasonal strength. More importantly, I focus on the technical though I do pay attention to the seasonals. So, I saw a pretty decent chart on the sector, and I’d like to go over what I’ve been looking at. And then sochme of the key components in the ETF SOXX, which is listed in the USA, which covers the semiconductor sector stocks. So, let’s get started. We’ll go right to the seasonal chart before we go into the actual stock charts.

So here we go. And this right here that you’re looking at is courtesy of equityclock.com. And by the way, for seasonals, I use both equity clock and I use Brooke Thackray’s book books. I should say. He puts out an annual book called the Thackray guides. And it’s kind of a neat book because every year you can just flip through the book month by month and find out what’s coming up. So, it’s very handy. And then equity gives you a very neat little chart to give sort of a visual and being a chart guy I’m a very visual guy. So, the equity charts appealed to me for getting a real handle on when I should be looking at stocks. And the extent of the outperformance. So Thackray’s guides give you the heads up on what you should be looking at.

And then equity gives you some of the details of those movements. So, in this case, here’s how you read these, these charts, take a look at September, which is the month we’re in right now. I’m recording this on the 22nd of September, and you’ll see that the sector tends to do mediocre over the summer and then really blast off from basically the end of September. Let’s call it the beginning of October, right through into the new year. Now, after that, it goes into another period of doldrums. So, the time to on from a seasonal perspective, the semiconductors is basically from around now until around the end of the year. So how you read this chart is it’s on a relative basis versus the markets. So, the semiconductors here have shown that the outperformance is about 8% versus the market on a relative basis, which is significant.

So, in that period of time, mind you, it’s not over a year, so let’s go back and now start by looking at some of the charts that make up the index. I’m just going to pull up to start with the, iShares SOXX ETF. So, this is the Philadelphia semiconductor ETF index ETF, I should say. So, what you can see here is that it’s been in a kind of lethargic uptrend. So, over the summer, it even really, since the beginning of the year, it was quite flat and it just seems to be breaking out now, which is a very positive thing. It’s nowhere near overbought, and you can see how close it is to the 200-day moving average, which is this red line. So, it’s, it’s in a good place right now to start at seasonal period. Interestingly, while this relatively lethargic looking turn has been happening, money flow into that index has picked up.

Now, some of you may be aware that I prefer money flow over volume. The volume picture would have given you the opposite view, that volume was declining through much of the year, but actually, money flow, which is price times volume. So, if it’s a positive move on the market, then you get more money flowing into the stocks. It’s not necessarily just the volume because you can have a declining situation like here and you get spikes in volume, but that’s just the number of shares traded. We want to know how much money’s going to the sector. And you can see by this accumulation distribution line down here, there has definitely been money flowing in and a much faster pace than it has for many years into this sector. Why I suspect, I am suspecting that that is because the semiconductor industry has been very curtailed from the supply chain.

There are shutdowns in factories. There’s the half capacity for workers. There are shipping problems. I think we’re all aware of the supply chain problems. Well, there’s a huge demand out there for widgets, including automobiles and even toasters and microwaves for semiconductors. And unfortunately, many big industries like the auto industry have had a hard time getting all the semiconductors. The theory might be that when they finally start to get the supply lined up with the demand that, this is going to be a very profitable business to be in, and that could be the first quarter of next year and the market, which tends to lead the reality of the economy might pop just in time for the seasonal play. So that’s a theory. I’m not promising anything here, but that might maker sense to me. And it’s another reason why I’m interested in the semiconductor sector. Now I’m going to go through some of the top names.

If you type in SOXX ETF on Google, and you can get a list of all the top names. What I’m doing is I’m showing you the list of the top, the top names that represent about 35% of the index. Okay. So, let’s get started and we’ll go right to Texas instruments, which is something like 5% or 6% of the index. If I recall correctly, again, don’t, don’t bank on me being correct in that they don’t have it in front of me, but Texas has definitely been in a sideways consolidation. It is attempting to break out right now. So, you know, it’s an interesting-looking chart.

Let’s go to Broadcom, which is, I think the biggest position in this sector. And you can see it as most definitely breaking out. So, looks very much like the SOXX ETF, but wait, let’s look at Intel and Intel, you can see has very little resemblance to that SOXX ETF, the index itself. Various reasons for that fundamentally, but basically Intel is stuck in a trading range now for near-term traders.

This is actually a great chart because if you can buy it somewhere near the bottom of a consolidation, which might come in, you see old peaks here back in 2018, that might act as support. And you can see, you know, here was a peak and it may just be forming some support right now. So perhaps for shorter-term traders, someone like Intel makes more sense than a tidier-looking chart. It depends on your trading style.

Now I want to look at Nvidia. They are definitely following the pattern of the index. In fact, they are probably breaking out stronger than most of them. In fact, maybe the bigger, bigger weighting than Broadcom was, but whatever the case, it’s a very positive looking chart. You can’t argue with that. Might be a little over, but you can see from the distance over its 200-day moving average, but nonetheless, it’s a, it’s not a bad looking chart at all.

So, I think we’re going to finish up with Qualcomm. We don’t own this, but I have traded in the past. It’s a real trader. It kind of looks like Intel back in the 2017, 2018, 2019 when I was trading it, it kind of looks like what Intel looks like right now up and down. And, again, you can, you can trade these kinds of things. It kind of looks like it’s stuck in one of those trading zones again and again, though, it’s coming down to near the bottom of its range. So, it just may end up being a nice swing trades, somewhat like Intel for players who like to trade with a shorter-term horizon. So that’s the Qualcomm chart and we’re back to the index. So overall my 2 cents worth on the SOXX index and the semiconductor business of potential over the coming two quarters is relatively bullish.

And I think it’s time we pull our SOXX off and or I should say, put our SOXX on and consider this sector as something that might just deserve a place in the appropriate investors portfolio. Thanks for watching. And if you have any questions, please post them to my blog site, which is a valuetrend.ca. And also, if you are having trouble finding sectors and stocks, and you’re just getting a little frustrated with the volatility is probably a protein on the markets coming up by all means. Shoot us an [email protected]. And we can talk to you about your portfolio. If you’re looking for some professional advice, that’s what we do for a living. Okay. Thank you very much for watching and we’ll see you next week.


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