Today I want to review how a technical theory is signaling that the tech-heavy
and the Philadelphia semiconductor index (SOX) are poised to move higher, and then I will screen several SOX components, including
Moving-average theory is one tool of technical analysis that's easy to understand. It states that when a shorter-term moving average crosses above a longer-term moving average, the charted index or stock is poised to move higher. Today, the Nasdaq is experiencing a positive moving-average crossover on its daily chart, with the 50-day simple moving average (SMA) crossing above the 200-day simple moving average (SMA) as the two have converged as support at 2034. This compares to the
Dow Jones Industrial Average
, which is floundering below its 50-day and 200-day SMAs at 10,405/10,447 as resistances.
There is an anomaly in this setup and that's the
Nasdaq 100 Trust
( QQQQ), which is below its 50-day and 200-day SMAs, at $37.05 and $37.24, respectively. All this indicates to me is that the 100 largest nonfinancial companies that make up the QQQQs are underperforming the broader Nasdaq. To complete the profile for the QQQQs, my models show daily support at $36.49, with monthly resistance in June at $37.93. It should be noted that this support held this morning despite the London terrorist attack.
A more important leadership crossover I have been obsessed with is the weekly chart for the SOX, which is poised for a bullish crossover last seen in November 1998. The chart below shows the five-week modified moving average (MMA) set to cross above the 200-week simple moving average (SMA) given a close this week at 430.75 or higher as these moving averages are converged at 423.72. The five-week MMA has been below the 200-week SMA since September 2001. With only two crossovers in seven years, a positive crossover now would be an extremely strong semiconductor leadership signal. Given this confirmation, my model shows a monthly pivot at 425.11, which would be support for the remainder of July.
Crossing the SOX
Source: Athena Graphics on Telerate Plus, a Reuters product
Screening Select SOX Components
: The chip-equipment maker is 29.9% undervalued with a monthly value level at $16.16, a price at which my models indicate that buyers should emerge. The weekly chart profile is neutral and needs a close this week above its five-week modified moving average at $16.39 to shift its profile to positive.
interview in early June, CEO Michael Splinter described the firm's Uvision chip-inspection tool, which is designed to find tiny flaws during the chip-manufacturing process. The company expects demand for this product to be strong during the next chip-equipment upgrade cycle and that should come sooner rather than later given the fast evolution of the next generation of chips.
Advanced Micro Devices
: The chipmaker is 5.8% overvalued and trading between an annual pivot at $18.29 and a weekly resistance at $18.80. Advanced Micro reports earnings on July 13 and is expected to report a loss of 6 cents per share. The company is about to duel Intel in the courts over antitrust issues concerning dual-processor chips. In my judgment, there is room for growth for both companies, but to buy AMD now in anticipation of a favorable ruling, which could be months if not years away, seems ludicrous to me.
: The chip giant is, in my judgment, one of the most important stocks in the U.S. markets as it's in the Dow,
and the Nasdaq. Investors should recall that Intel was the best performer in the S&P 500 in 2003, so don't ignore its leadership potential. The stock is 30.6% undervalued with a weekly chart profile that's becoming overbought. My models show quarterly support at $23.95, with monthly pivots at $26.17/$26.86, and a weekly resistance at $28.34. Intel will report earnings on July 19 and is expected to report 32 cents per share.
Intel has said it anticipates "very seasonal" demand for computer chips at the beginning of the school year and for the holiday season, characterized by strong demand for PCs and other electronic devices. The company also expects strong growth to continue in the Asia Pacific region, which accounted for 47% of the firm's sales in the last quarter. Intel plans to spend $200 million in China to accelerate the use of computers and the Internet, and another $400 million in India to make chips. The company is also considering opening a plant in Vietnam, as use of computers in that country escalates.
: This SOX laggard is 52.1% undervalued with a neutral weekly chart profile that needs a weekly close above its five-week modified moving average at $12.91 to shift to positive. In the event of a positive crossover for the SOX, Teradyne should regain some momentum. The company reports earnings on July 19 and is expected to report a loss of 21 cents per share.
is a clear SOX leader. The stock is 21% undervalued with an overbought weekly chart profile. My model shows monthly support at $26.87 with a weekly pivot at $28.50, and weekly/monthly resistances at $30.04/$30.13. Those are the levels at which investors should consider booking profits. The company reports earnings July 25 and is expected to earn 29 cents per share.
: This SOX laggard is 39.5% undervalued with a negative weekly chart profile as it flirts with its 52-week low at $25.20. A positive crossover on the SOX should help Xilinx trade toward my monthly resistance at $28.85. The company reports earnings July 21, and is expected to earn 21 cents per share.
Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of
newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury Bond Trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury Strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback --
to send him an email.