(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of SWKS.)
Chips stocks have been among the hottest groups in 2018, as measured by the iShares Semiconductor ETF (SOXX). The ETF has climbed by nearly 14% in 2018, easily outpacing that of the broader S&P 500 so far in 2018. But stocks like Lam Research Corporation (LRCX), Skyworks Solutions, Inc. (SWKS) and Teradyne, Inc. (TER) may be set to rebound by 10% or more in the coming weeks.
The semiconductor ETF has climbed by 12.5% since the beginning of May, and the technical chart would suggest there are more gains to come for the ETF. The ETF is quickly approaching its all-time high around $198, and should it rise above the technical resistance level at around $198; the ETF could be set to increase to $201, about 4% from its current price around $193.40. (For more, see also: 3 Chip Stocks Poised to Rise as Much as 26%.)
Shares of Lam Research have not performed nearly as well as the broader ETF, with the stock climbing by only 8% since the start of May. But the technical chart suggests shares are primed to breakout, taking the stock about 12.5% higher, to roughly $230, from its current price around $204.25. The chart shows shares of Lam trying to break out of a bullish technical pattern called a flag, or pennant—a continuation pattern. If Lam is successful in breaking out, the next level of resistance comes around $230. Additionally, the relative strength index (RSI) is also showing signs of nearing a breakout of a downtrend as well.
Skyworks’ stock is nearing a breakout too, which could send shares rising by 11.9% to almost $112. The stock is sitting at a technical resistance level around $100.50 and is attempting to rise above it, and if it should, it would trigger a breakout. Additionally, the chart is showing a similar bullish technical pattern, a flag, and that too would suggest shares of Skyworks are set to rise. (For more, see also: Chip Stocks May Have Hit Their 2018 Highs.)
Teradyne is on the verge of breaking out, with shares of the stock attempting to rise above technical resistance at $39.25. The stock is trying to refill a gap created in the middle of April when shares plunged from roughly $41 to $37. The stock has been rising on increased levels of volume, a bullish indication, while the RSI is attempting to break free of a downtrend, another bullish sign. If shares managed to break out, the next level of technical resistance would come around $43, about 10.25% higher.
Momentum in the chip sector has been strong for the past month, and it appears likely to stay that way for a while longer.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.