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Tickers in this Article: INTC, ADI, SIMG, ALTR, CY
Semiconductors has been one group providing market leadership throughout the past month's rally. The group has recently started to move out of a period of consolidation and has been leading the way through several turning points. As a whole, this group is at a critical area, and what happens next will surely have important implications for the rest of the market.
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Analog Devices (NYSE:ADI) for instance, spent the past several months trading sideways as it consolidated its rally from its bear market lows in late 2008. The $31 level had been holding ADI back throughout the entire range. ADI recently started to set higher lows as buyers began stepping up on pullbacks. ADI was able to clear the top of its base in late September and after consolidating just above this level, it appears to be following through. Now that $31 has been cleared, it should be watched as a possible support level on any weakness. (For more, see The Anatomy Of Trading Breakouts.)

Source: StockCharts.com


Altera Corporation (Nasdaq:ALTR) is another semiconductor stock that recently cleared a consolidation. ALTR didn't trade in the lengthy base that ADI did, but it did consolidate between the $25 and $29 levels for the past few months. On longer term charts, ALTR has been steadily stair-stepping higher after brief consolidations, and this move appears to be following suit. ALTR was able to clear $29 in late September, and after a brief pullback to the breakout area, it appears to be heading back higher. (For more, see 5 Semiconductor Stocks Worth Watching.)

Source: StockCharts.com


Silicon Image (Nasdaq:SIMG) has also been able to clear resistance recently. SIMG broke out of a base back in July on a sharp gap higher, and while it pulled back into the gap a month later, it was able to find support and head back higher. The post-July breakout eventually turned into another consolidation, which SIMG was recently able to clear. SIMG cleared the $4.50 level in September, and has formed a flag pattern as it pulls back to test this level for support. If SIMG can bounce from this level and clear the flag, it would validate the breakout.

Source: StockCharts.com


Cypress Semiconductor Corporation (Nasdaq:CY) is another semiconductor that may benefit from Intel's report. CY is following much the same pattern as the other semis in that it recently cleared a base and is consolidating the breakout. One important difference though, is that CY does have possible resistance near $14-$16 to contend with. However, beyond this resistance area lies the clear blue skies of all-time highs. CY reports on October 21, so it's possible that it could run higher.

Source: StockCharts.com


Bottom Line
While Intel may not be the trading stock it once was, its earnings report typically carries the most weight in this space. As such, traders should be on high alert for possible trading opportunities in the chip stocks over the next few days as market participants absorb the news. Many of the stocks above are already above recent resistance levels, and if the reaction to Intel's earnings is positive, these stocks should be able to build on their recent breakouts. If the reaction is negative, then traders should focus on how these stocks behave on a test of their breakout areas. In either case, the stage should be set for some movement in this group. (For more, see KLIC Goes Clunk.)

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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

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