Tech stocks have continued to lead this market higher and semiconductors have been a big part of the reason for that move. The group, as tracked by the Semiconductor HOLDRs (NYSE:SMH) ETF, is trading near 52-week highs and is approaching the top of its recent range. SMH had been in a very long and wide consolidation from mid-2009 through late 2010 and had found good support on any dip into the mid $20s, and sellers near $30. It recently cleared this base and rallied to the $33 level. It has since been trading in a very tight range as it consolidates the breakout. SMH is currently pressing into the top of this tight range, threatening a breakout above $33.

IN PICTURES: 9 Simple Investing Ratios You Need To Know

Source: StockCharts.com



The pattern in SMH is pressing toward a resolution just as its largest component, Intel Corporation (Nasdaq:INTC), gets ready to release its earnings report on January 13. This report should set the tone for the semiconductors and would certainly act as a catalyst for SMH. In looking at INTC, it's interesting to note that it has not performed as well as the ETF. In fact, INTC may have been holding it back. INTC has been trying to grind out a bottom since its early 2010 reversal. The chart for INTC is showing a possible inverse head and shoulders pattern being built with a neckline near $22. A breakout above $22 would confirm this pattern as a bottom and likely lead to higher prices. If INTC were to report poor earnings or guidance, there's a chance it could drop back toward the bottom of its base in the high teens.

Source: StockCharts.com



So if INTC is not the reason for the strong performance in SMH, then what stock is? Well, Texas Instruments (NYSE:TXN) is one component that has a nearly identical chart to SMH. TXN broke out of a solid base in late September and rallied sharply. It has been trading in a very tight range and has refused to give up much ground on any pullbacks. $34 is the clear level to watch moving forward as a break above this range would likely mean a continuation of the prior rally.

Source: StockCharts.com



Another component that has been a great performer is Analog Devices (NYSE:ADI ). ADI also cleared a solid base in September and rallied over 25%. The long-term chart for both ADI and TXN shows a very healthy consolidation. With the clear breakout above these bases, the longer term trend is definitely strong and favoring a continuation move higher. The short-term chart is trading in a very tight consolidation and simply waiting for a catalyst. Traders should watch the $37 level on the downside as a break below this level could lead to further consolidation.

Source: StockCharts.com

While exactly how market participants will react to Intel's upcoming earnings this week is unknown, the report could act as a catalyst for a breakout in the semiconductors. INTC is close to a significant level that would confirm a breakout, while the other semiconductors are trading in a tight range after a strong move. Of course, INTC could drop after earnings too, but traders should stay on top of this stock because if things go right, there's potential for a great trade here.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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

Related Articles
  1. Chart Advisor

    3 Ways to Trade the Rising Volatility

    With volatility increasing in the markets, many are turning to these three volatility-capturing exchange-traded products.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares US Basic Materials

    Learn about the iShares US Basic Materials exchange-traded fund, which invests in the equities of chemicals, metals and industrial gas companies.
  3. Chart Advisor

    Big Double Top Patterns On the Verge of Breaking

    These stocks have created big double top chart patterns, and are on the verge of breaking the patterns to the downside--a bearish signal.
  4. Mutual Funds & ETFs

    ETF Analysis: Ultra Oil & Gas

    Find out more about the ProShares Ultra Oil & Gas exchange-traded fund, the characteristics of the ETF and the suitability and recommendations for the fund.
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Commodity Tracking

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  7. Mutual Funds & ETFs

    Comparing ETFs Vs. Mutual Funds For Tax Efficiency

    Explore a comparison of mutual funds and exchange-traded funds, or ETFs, and learn what makes ETFs a significantly more tax-efficient investment.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Small-Cap Value

    Find out about the Vanguard Small-Cap Value ETF, and explore detailed analysis of its characteristics, suitability, recommendations and historical statistics.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Corp Bd

    Learn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
  10. Insurance

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  3. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  4. Indicator

    Indicators are statistics used to measure current conditions ...
  5. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  2. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  3. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!