Have the Semiconductors Bottomed?

09/30/2014 10:20 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

Semiconductor stocks performed well on Monday, so MoneyShow’s Tom Aspray uses technical analysis to determine if an ETF and three stocks in the sector present any new opportunities to buy.

The stock market staged an impressive rebound Monday, even though the major averages did close lower. The S&P futures dropped to a low of 1955.50 in early trading but then closed the day at $1968.50.

This is a sign that there are buyers at lower levels, which is a positive for the overall market. The futures are showing moderate gains in early trading while the EuroZone markets are also higher in early trading.

The daily technical studies are still negative but are trying to bottom out. Yesterday’s Dallas Fed Manufacturing Survey was better than expected so the market will be watching today’s Chicago PMI report. Also out today is the S&P Case-Shiller HPI and Consumer Confidence Index.

Some industry groups have corrected back to first good support and led the market higher in Monday’s session. The semiconductor stocks did well yesterday and a review of an industry ETF as well as three stocks presents new opportunities to buy.

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Chart Analysis: The Market Vectors Semiconductor Holders (SMH) was up slightly Monday but is up 21.09% YTD.

  • At last week’s low of $50.62 it had declined 3.9% from the recent high.
  • For October, the monthly projected pivot support is at $50.44.
  • The daily starc- band is at $49.72 with the daily uptrend, line b, just above $49.
  • The tentative quarterly projected pivot support is at $48.65.
  • The relative performance has moved back above its WMA and appears to have held support at line c.
  • The volume increased Monday but the daily on-balance volume (OBV) is still below its WMA and resistance at line d.
  • The OBV has stronger support at line e.
  • There is first resistance at the September 19 high of $52.68.
  • The monthly projected pivot resistance is at $53.62.

Micron Technology (MU) was up almost 2% Monday and heavier than normal volume. The stock has had a great year as it is up 58.62% YTD.

  • The daily chart shows that MU gapped above resistance, line f, last Friday in reaction to strong earnings.
  • The daily starc+ band is now being tested with the tentative monthly projected pivot resistance at $38.15.
  • This is also the upside target from the flag formation, lines f and g.
  • The relative performance broke through resistance, line h, on September 25.
  • This completed the corrective pattern in the RS line.
  • The OBV has also broken through its resistance, line j, as it held up well during the correction from the mid-July high.
  • The weekly OBV (not shown) made new all time highs last week.
  • There is minor support now at $33-$33.30 with the 20-day EMA at $32.23.
  • MU is 6.5% above the 20-day EMA so is in a high risk buy area.
  • For October, the projected monthly pivot support is at $31.20.

Next Page: Two More Stock Opportunities

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Cavium, Inc. (CAVM) is a $2.72 billion broad line semiconductor company that hit a high of $56.60 at the end of August.

  • With Monday’s low at $49.03, CAVM was down 13.4% from its high.
  • It is still up 46.8% YTD.
  • The support going back to the 2011 high, line a, is in the $48.24 area.
  • Based on current data, the monthly projected pivot support is at $47.65.
  • The daily uptrend, line b, and the daily starc- band are in the $47.40 area.
  • The daily RS line is trying to turn up from support at line c, but is still below its WMA.
  • The daily OBV just closed back above its WMA on Monday as it has held above support at line d.
  • The weekly OBV and RS analysis (not shown) need a strong weekly close to move back above their WMAs.
  • The 20-day EMA is at $51.90 with the recent swing high at $54.50.

Veeco Instruments, Inc. (VECO) is a $1.45 billion broad line semiconductor company that has been in a trading range, lines e and f, for most of the summer.

  • The close Monday was just barely above the downtrend, line e.
  • There is next resistance at $36.77 with the early July high at $38.01.
  • The projected quarterly pivot resistance is at $38.31 with the targets from the trading range in the $41-$43 area.
  • The relative performance has slightly broken through its resistance at line g.
  • This suggests that VECO is becoming a market leader.
  • The daily OBV has moved well above its downtrend, line i, after bouncing off its rising WMA.
  • The weekly OBV (not shown) is above its WMA and close to an upside breakout.
  • There is initial support at $35.50 with the 20-day EMA at $34.89.
  • The monthly projected pivot support for October is at $33.99.

What it Means: This industry group has been a leader all year and the daily analysis suggests that it has completed its correction. Micron Technology (MU) is in a high risk buy area so I have no new recommendation for now but watch my Twitter feed.

The bottom has not yet been confirmed in Cavium, Inc. (CAVM) but it could be later in the week.

I like the Market Vectors Semiconductor Holders (SMH) and Veeco Instruments, Inc. (VECO). There is a heavy short position in VECO with short ratio of 23.5. This means that it would take that many days of average volume to cover the short positions.

How to Profit: For the Market Vectors Semiconductor Holders (SMH) go 50% long at $51.32 or better and 50% at $50.89 with a stop at $48.88 (risk of approx. 4.3%).

For the Veeco Instruments, Inc. (VECO) go 50% long at $35.86 or better and 50% at $35.14 with a stop at $33.73 (risk of approx. 4.9%).

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