How to Trade 5 Semiconductor Stocks Amid This Volatile Earnings Season
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Applied Materials (AMAT) - Get Report , Intel (INTC) - Get Report , Qualcomm (QCOM) - Get Report , Micron (MU) - Get Report and Texas Instruments (TXN) - Get Report are old-line semiconductor companies that are components of the PHLX Semiconductor Index, also known as the SOX. All five are trading well below the tech-bubble peaks they set in 2000 between March and August.
Their long-term volatility, plus the volatility so far in 2015, has made investment decisions around their quarterly results a challenge. Among these semiconductor companies, four have already reported this season. Applied Materials is scheduled to report its results after the closing bell on Thursday. Analysts expect the company to earn 28 cents a share.
While the Nasdaq CompositeI:IXIC set an all-time high in July 2015, the SOX still lagged its March 2000 tech-bubble peak by a significant amount, though it set a multiyear high in June 2015.
Let's set the stage by looking at a weekly chart for the SOX that includes its parabolic bubble around March 2000.
Courtesy of MetaStock Xenith
The parabolic bubble for the SOX began in 1999 and the all-time high set in March 2000 was an unrecognizable 1,362.10. After this bubble popped, the SOX traded sideways to down, setting a low of 167.55 in November 2008. In a similar pattern to Japan's Nikkei 225, after 15 years, the SOX has not been above to recover the 50% Fibonacci retracement of this plunge at 764.80. The multiyear high since the popped bubble was set at 751.21 on June 1.
The SOX is currently above its 38.2% retracement of 623.77 after trading as low as 543.03 on "Black Monday," Aug. 24. From its 2015 high to this low, the SOX was briefly in bear market territory, down 27.7%. The SOX is currently in correction territory, down 10.8% from its 2015 high.
Against this background, investors should study the technical charts and use good-till-canceled limit orders to buy on weakness and to sell on strength.
Here's the daily chart for Applied Materials.
Courtesy of MetaStock Xenith
Applied Materials closed at $16.81 on Monday up 14.4% so far in the fourth quarter, down 32.5% year to date, and in bear market territory, down 34.6% from its multiyear high of $25.71 set on Dec. 23, 2014. Its all-time high of $57.50 was set in April 2000.
The stock began 2015 above a "golden cross" confirmed on Jan. 28, 2013, when the stock closed at $12.96. This technical signal indicated that higher prices lay ahead and was still in play when the stock set its multiyear high. As the stock started to move sideways to down, a "death cross" was confirmed on May 6, which tracked the stock lower to a nadir of $14.25 on Aug. 24.
A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving average and indicates that lower prices lie ahead.
The horizontal lines represent the Fibonacci retracements from the 2014 high to the 2015 low. The stock has stalled around its 23.6% retracement of $16.94. Above is the 38.2% retracement of $19.97 and below is the 50-day simple moving average of $15.75.
Investors looking to buy Applied Materials should place a good-till-canceled limit order to purchase the stock if it drops to $13.89, which will be a key level on technical charts until the end of 2015.
Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $22.10, which will be a key level on technical charts until the end of 2015.
Here's the daily chart for Intel.
Courtesy of MetaStock Xenith
Intel closed at $33.35 on Monday, up 10.7% so far in the fourth quarter, down 8.1% year to date, and in correction territory, down 12% from the multiyear high of $37.90 it set on Dec. 5, 2014. Its all-time high of $75.81 was set in July 2000.
The stock began 2015 above a "golden cross" confirmed on May 14, 2013, when the stock closed at $23.84. This technical signal indicated that higher prices lay ahead and was still in play when the stock set its multiyear high. As the stock started to move sideways to down, a "death cross" was confirmed on March 23, which tracked the stock lower to as low as $24.87 on Aug. 24.
The horizontal lines represent the Fibonacci retracements from the 2014 high to the 2015 low. The stock had a positive reaction to earnings on Oct. 14, and after a lower open traded as high as $35.03 on Oct. 23. The key level to hold is the 61.85 retracement of $32.92, as the 50-day and 200-day simple moving averages appear poised for a "golden cross" at $31.36 and $31.47, respectively.
Investors looking to buy Intel should place a good-till-canceled limit order to purchase the stock if it drops to $30.01, which will be a key level on technical charts until the end of 2015.
Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $33.71 and $38.36, which will be key levels on technical charts until the end of 2015.
Here's the daily chart for Micron.
Courtesy of MetaStock Xenith
Micron closed at $15.84 on Monday, up 5.7% so far in the fourth quarter, down 54.8% year to date, and in bear market territory, down 56.7% from the multiyear high of $36.59 it set on Dec. 8, 2014. Its all-time high of $97.50 was set in July 2000.
The stock began 2015 above a "golden cross" confirmed on Jan. 16, 2013 when the stock closed at $7.67. This technical signal indicated that higher prices lay ahead, and was still in play when the stock set its multiyear high. As the stock started to move sideways to down, a "death cross" was confirmed on Feb. 26, which tracked the stock lower to as low as $13.50 on Aug. 24.
The horizontal lines represent the Fibonacci retracements from the 2014 high to the 2015 low. The stock failed at its 23.6% retracement of $18.97, with the stock now below its 50-day simple moving average of $16.74.
Investors looking to buy Micron should place a good-till-canceled limit order to purchase the stock if it drops to $15.57, which will be a key level on technical charts until the end of 2015.
Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $29.74, which will be a key level on technical charts until the end of 2015.
Here's the weekly chart for Qualcomm.
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Qualcomm closed at $52.94 on Monday, down 1.5% so far in the fourth quarter, down 28.8% year to date, and in bear market territory, down 35.4% from its multiyear high of $81.97 set on July 23, 2014. Its all-time high of $100.00 was set in January 2000.
The weekly chart is negative, with the stock below its key weekly moving average of $56.52, and well below its 200-week simple moving average of $67.18. The weekly momentum reading is projected to decline to 45.30 this week from 47.87 on Nov. 6.
The horizontal lines are the Fibonacci retracements from the late-2008 low to the 2014 multiyear high. The stock rebounded to just below the 38.2% retracement of $61.50. Then, in a negative reaction to earnings on Nov. 5, it broke below the 50% retracement of $55.14, but stayed above the 61.8% retracement of $48.75.
Investors looking to buy Qualcomm should place a good-till-canceled limit order to purchase the stock if it drops to $52.64, which will be a key level on technical charts until the end of November.
Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $62.22, which will be a key level on technical charts until the end of 2015.
Here's the weekly chart for Texas Instruments.
Courtesy of MetaStock Xenith
Texas Instruments closed at $57.21 on Monday, up 15.5% so far in the fourth quarter, and up 7% year to date. Its all-time high of $99.78 was set in March 2000.
The weekly chart is positive but overbought, with the stock above its key weekly moving average of $54.28 and well above its 200-week simple moving average of 41.92. The weekly momentum reading is projected to rise to 81.36 this week from 79.72 on Nov. 6, becoming overbought.
The horizontal lines are the Fibonacci retracements from the March 2000 high to the late-2008 low. The 2015 multiyear high was above the 50% retracement of $56.46, and the subsequent dip to the Aug. 24 low of $43.75 was below the 38.2% retracement of $46.22. The post-earnings high following a positive reaction on Oct. 22 was back above the 50% retracement as a potential double-top.
Investors looking to buy Texas Instruments should place a good-till-canceled limit order to purchase the stock if it drops to $47.78, which will be a key level on technical charts until the end of November.
Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $59.21, which will be a key level on technical charts until the end of 2015.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.