Chip Sector Coming Back to Life

The PHLX Semiconductor Index (SOX) and the sector's top exchange-traded funds have finally cleared November 2008 resistance. This notable breakout could speed up the chip recovery that began in the fourth quarter of last year. That's good news for long-suffering shareholders and for the tech indices that are heavily weighted in these instruments.

Market players look at chip stocks as cyclical plays, rather than growth issues, so it's no surprise the group is doing well, in light of intense speculation that the deep recession is finally nearing its end. But this is a two-edged sword, because the sector might cool down, along with other cyclicals, once a new economic cycle has been firmly established.

So, as usual with these issues, timing is everything when it comes to making money. Also keep in mind that the sector underperformed the broad market badly during the last bull cycle, because, in many ways, these companies have become the toasters of our modern era - once considered high-tech but now commonplace and considered a commodity. For this reason, it's best to stick with the bluest of blue chips and the most speculative plays.

Intel (INTC) -- Daily eSignal

Speaking of blue chips, sector giant Intel(INTC Quote) dropped to the low of the 2000-to-2002 bear market in November and then shot higher into December. That recovery attempt failed and gave way to a selloff that found considerable support when it approached the 2008 low. The stock then surged higher, triggering a good-looking double-bottom reversal.