The iShares PHLX Semiconductor ETF (SOXX) - Get iShares PHLX Semiconductor ETF Report has been setting fresh all-time intraday highs almost daily and its quarterly risky level at $207.09 is my price target. Demand for semiconductors is an important economic indicator as almost all durable goods we buy - from smartphones to refrigerators and automobiles - include computer chips.
Helping the SOXX is the formation of a "golden cross" on its daily chart confirmed on March 20. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average and indicates that higher prices lie ahead. The weekly chart is positive but overbought which is a sign of strong upward momentum.
The SOXX has 30 semiconductor stocks as components led by the five largest shown in this table.
The SOXX closed Thursday at $199.29, up 27% year to date and in bull market territory 37.6% above its Dec. 26 low of $144.79. Semiconductor stocks are poised for additional gains if a trade deal between the U.S. and China is reached.
The Daily Chart for the SOXX
Courtesy of Refinitiv XENITH
The daily chart for the SOXX shows the formation of a "golden cross" since March 20, when the 50-day simple moving average rose above the 200-day simple moving average indicating that higher prices would follow. In anticipation of such a signal the ETF tested its 200-day SMA on March 8 when the average was $178.48. Note that Dec. 26 was a "key reversal" day as the ETF closed that day at $153.70 above the Dec. 24 high at $149.74. This was a clear indication that the SOXX would experience a tradeable rally. The ETF closed Dec. 31 at $156.91 which was an important input into my proprietary analytics. Semiannual and annual value levels remain at $173.86 and $158.35, respectively. The close of $189.54 on March 29 was the latest input to my analytics. This resulted in a monthly value level at $169.83 and a quarterly risky level at $207.09.
The Weekly Chart for the SOXX
Courtesy of Refinitiv XENITH
The weekly chart for the SOXX is positive but overbought with the ETF above its five-week modified moving average of $186.49 and well above its 200-week simple moving average or "reversion to the mean" at $136.54. The 12x3x3 weekly slow stochastic reading is projected to end this week at 88.21 and has been above the overbought threshold at 80.00 since the week of Feb. 15.
Trading Strategy: If you are buying for the strong momentum reduce holdings on strength to the quarterly risky level at $207.09. The conservative buy levels are the 200-day simple moving average at $176.41 and the semiannual value level at $173.86.
How to use my value levels and risky levels:
Value levels and risky levels are based on the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels were based on the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in already. To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
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Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.