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Chipmaker Likely to Outperform Sector
07/29/2020 9:16 am EST
Joe Duarte shares the one stock in the semiconductor space like to outperform.
Shares of logic chipmaker Xilinx (XLNX) bucked the general downtrend in the semiconductor space with good reason (see chart below). In its last quarter the company made it clear that it was unsure of its business due to Covid-19 and was going to focus not just on growing the business, but on capital preservation while giving very conservative guidance for the next quarter but no guidance for the full year.
However, given the action in the rest of the industry where most companies have delivered better than expected earnings, it seems likely that Xilinx will likely deliver good news for the current quarter when it reports on July 30. That said, much of what the price of the stock does after its earnings will be about its future guidance, which brings me to potentially good news.
Logic chips are very flexible chips, meaning that they are sort of a blank slate that can be programmed, even in the field to perform specific functions. As Covid-19 has proliferated, so has the demand for computing power. This has likely increased demand for logic chips to be used as companies increase their communication and server needs.
The stock is in a bullish and steady rise at the moment, trading above its 20- and 50-day moving averages, placing it in the complexity zone, where stock prices tend to rise. Moreover, Accumulation Distribution (ADI) and On Balance Volume (OBV) are moving higher in a pattern that suggests the stock is under long-term accumulation. While the stock is not close to overbought yet, if XLNX can move above $107 in the short term, the odds favor an acceleration of its uptrend.
I own shares in XLNX.
To learn to trade options with less risk buy a copy of my bestselling book “Trading Options for Dummies.” Click here. To find out more about stocks that should benefit from the MEL phenomenon consider a FREE trial to Joe Duarte in the Money Options.com, click here. And check out my latest edition of Stockcharts.com’s Your Daily Five, titled “Five Stocks with Explosive Potential” where I reveal five stocks that are poised to benefit in a big way from the latest trends in MEL.
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