The technological advancements and resulting conveniences of modern life are thanks in large part to constant innovation from within the semiconductor sector. As you know, increasing levels of sophistication have been the norm for years, and unsurprisingly, investors of companies within this space have been handsomely rewarded. In this article, we'll take a look at three charts that highlight how this sector is trading at an influential pivot point and consider how prices could be geared for a sharp move higher over the weeks or months to come.
VanEck Vectors Semiconductor ETF (SMH)
The broad market sell-off that occurred in the latter part of 2018 sent nearly every sector sharply lower, and semiconductors were no exception. So far in 2019, the bulls have managed to regain those losses, and the price of the VanEck Vectors Semiconductor ETF (SMH), a common fund used to measure the performance of the sector, is trading near a very significant level of resistance.
As you can see from the chart below, the horizontal trendline and 200-day moving average (red line) have been able to influence the price in the past, and traders will expect this to be the case again. Followers of technical analysis will likely watch for a couple consecutive closes above $98.67 to confirm the breakout. Increasing levels of volume that accompany a move higher over the next few sessions would also be a positive sign for the bulls, and many will likely look to place orders close to the support level in order to maximize the risk-to-reward of the trade. Short-term target prices will likely be set near the previous swing highs around $107.50.
Intel Corporation (INTC)
For many investors, the name Intel Corporation (INTC) is synonymous with the semiconductor sector. The behemoth accounts for 12.89% of the SMH fund and is trading near the combined resistance of a short-term trendline and its 200-day moving average. Active traders will want to keep a close eye on the psychological $50 mark because a rise above that level would likely act as a catalyst to a surge in buy-stop orders and a resulting move toward the 2018 high of $57.60. From a risk-management perspective, stop-loss orders will likely be placed below the ascending trendline near $46 in case of a sudden surprise of shift in fundamentals.
Broadcom Inc. (AVGO)
Another large-cap semiconductor company that is a favorite of active traders is Broadcom Inc. (AVGO). Broadcom's chart is more bullish than those mentioned above because the stock has managed to trade above its 200-day moving average, which proved to be a level of concern when the price tested it in early January. The bounce off of long-term support and the resulting break beyond the dotted resistance level are clear indicators that the bulls are in control of the momentum and that prices could head higher. Stop-loss orders will likely be placed below the 50-day moving average ($247.98) in case of a sudden change in sentiment.
The Bottom Line
The semiconductor sector has been the backbone of the technological advancements over the years, and the recent sell-off has offered traders a lucrative entry point. While prices have had a terrific run so far in 2019, the charts discussed above suggest that there is significant upside to come over the weeks and months ahead.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.