The one technology subsector that has lagged somewhat over the last year has been the semiconductors. We are now starting to see this group catch up and make some significant "bottoms up" improvement.
Monday we saw very strong action from the semiconductor-equipment names. A bullish earnings report overnight from
energized the group and brought buyers into the sector.
Philadelphia Semiconductor Index
This is promising action, but investors should remember that the Philadelphia Semiconductor index (SOX) has not broken out of the large multiyear base formation in the weekly chart, which means that long buys in the sector are still fairly aggressive until the long-term base resolves to the upside.
With that said, Monday's news has put the semiconductor-equipment stocks on the offensive in the daily time frame, and shorts are being "run in" on these stocks. We have isolated a few names for traders to consider at this level.
Two names that should be interesting to traders in the group are
. Both of these names have shown superior relative strength vs. the broader semiconductor sector and have been performing well vs. the broader market in general.
Lam Research manufactures wafer-fabrication technology for the semiconductor industry. The stock has been acting as a leadership name in the semi-equipment sector during most of this rally. LRCX has tracked steadily higher and built a solid uptrend line since 2004.
It broke out over weekly resistance today, and it is reasserting the primary uptrend. Traders can look for a minor pullback and consolidation off of the highs to put a position on in LRCX. Look for this stock to resume the uptrend higher and continue to act as leadership in the sector.
Varian Semiconductor also continues to hold a bullish overall look to the chart. On its weekly chart, the stock broke out of a very large base formation back in 2006 and has since surged higher. Recently, the stock has pulled back off of the highs and formed a bullish consolidation formation. The pullback appears complete after the surge higher in the stock today.
We would look for some cooling or a minor pullback off of today's push higher and then go ahead and get long the stock. VSEA is back on the offensive, and the stock should continue the primary uptrend.
We expect to see the semiconductor sector catch up with the broader technology group and break out of the weekly base formation once a bullish catalyst emerges in the sector and a plausible investment theme is created.
At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.