RealMoney Silver - Can Semis Expect a Merry Christmas?

Can Semis Expect a Merry Christmas?
By Mark Manning
RealMoney.com Contributor
10/8/2007 2:56 PM EDT

The semiconductors have been under quite a bit of pressure lately after a negative earnings report earlier this month from Micron Technology (MU) and a bearish industry assessment from Morgan Stanley, which issued an underweight rating on Advanced Micro Devices (AMD) and Intel (INTC) .

Morgan Stanley analysts are concerned about the intense competition between Intel and AMD. The concern is that PC makers are likely to order double the number of chips that they actually need going into the holidays. That strategy has not worked out well in the past for the semis, and chip prices often fall as unsold personal computers are left over after the holiday season, demand for chips slows to a crawl and factories are forced to slow production.

Semiconductors often ramp higher going into the holiday season, but we are going to have to see if that happens this year with the intense competition and the oncoming supply from these two powerhouses. Today we're going to take a look at several companies and their charts to get an idea if that trend is going to continue this year.

Intel has quite a bit of resistance in the $26.50 area, and it recently failed at that level for the third time since July. You can also see from the windows below the chart that there has been quite a bit of heavy institutional selling (from the large red volume bars) and the money stream has been flat.

This price/volume relationship is going to have to change for the stock to break above this resistance level. For that to happen, it will be important that the price remains above the 50-day moving average and breaks out on heavy volume. If the price breaks back down below $24.60, we could easily see a test around $23.

Advanced Micro Devices has been trading near three-year lows for the past couple of months. The price has recently broken back above its descending 50-day moving average on slightly higher-than-normal volume.

AMD's chart doesn't give you much hope for a strong price run into the holiday season. However, that could possibly change if we would see a price break above the $16 level. If that did happen, I would certainly like to see the money stream, which charts the institutional flow of funds, start leading the price higher.

National Semiconductor (NSM) has a much better technical pattern than AMD. Its price has been trending near the top range of its three-year highs.

After the recent market correction, NSM has quickly recovered back above its 50-day moving average. Last week, it tested that support level and now looks like it is preparing to make another attempt to move higher. NSM is a fairly low-risk trade if you put a protective sell stop under the $26 area.

I don't know if we are going to see the same price pattern of the stocks moving higher like we have in the past. However, it could certainly be an area that institutions rotate into, because the semiconductors haven't participated much in the recent rally.