Semiconductor Stocks Key Economic Growth

NEW YORK ( TheStreet) -- In my opinion the semiconductor industry is an important economic indicator. If the economy is strong the demand for devices containing semiconductors should be robust.

Strong demand for durable goods is also a sign of demand for semiconductors as just about every appliance used around the globe has semiconductor components.

The benchmark I use for the semiconductor industry is the PHLX Semiconductor Sector Index ( SOX). If the SOX ends the month below its five-month modified moving average at 398.27 the monthly chart profile will begin the second half of 2012 with a negative monthly chart profile. This would be a warning of a slowing global economy.

During the strong market performance since the March 9, 2009 lows, the SOX peaked well before the Nasdaq. The SOX tested its high for the move at 474.33 on Feb. 18, 2011. Compare this to the Nasdaq, which peaked at 3134.17 this year on March 27. This divergence should be considered the first warning that global economic growth is not as robust as analysts thought.

The SOX is only up 3.9% year to date with the Nasdaq up 11.0%. A lagging SOX is another economic warning. Here are two more statistics showing the drag of the SOX. The SOX is only 17.5% above its Oct. 4 low compared to 25.6% for the Nasdaq. The Nasdaq is 7.7% below its March 27 high while the SOX is 20.2% below its February 2011 high.

Let's look at the daily chart for the SOX.

The SOX reached a year-to-date low at 348.94 on June 4 and rebounded to a test of its 50-day and 200-day simple moving averages, which are in a "death cross" formation at 387.16 and 390.30. Note also that the daily momentum (12x3x3 daily slow stochastic) reading is declining. I am projecting risk back to the Oct. 4, 2011 low at 322.24 in the second half of the year.

Chart Courtesy of Thomson/Reuters

Here are profiles for five semiconductor stocks that are Buy rated according to ValuEngine.

  • Applied Materials (AMAT) ($11.23) has an overbought daily chart with the stock trading between its 50-day and 200-day simple moving averages at $11.08 and $11.55. This stock was a member of the ValuTrader Model Portfolio. It was removed from the portfolio using a GTC Limit Order to sell strength to my quarterly risky level at $11.50 last week.
  • Intel Corp (INTC) ($26.93) has an overbought daily chart with the stock trading between its 200-day and 50-day simple moving averages at $25.52 and $27.02. My weekly value level is $24.98 with my annual pivot at $30.58.
  • Marvel Technology (MRVL) ($11.43) has an oversold daily chart with the stock just above its Aug. 9, 2011 low at $11.23. My proprietary analytics shows a quarterly value level at $11.13. There's a reasonable chance that this stock should hold the low. I have a semiannual pivot at $11.48, which should help a stabilization scenario with my monthly risky level is $14.00.
  • SanDisk Corp (SNDK) ($36.36) has an overbought daily chart with the stock just above its 50-day simple moving average at $35.74. The stock traded around my annual pivot, now a risky level at $47.37, between the beginning of the year and April 3 when the downside began. The June 1 low was $30.99.
    My semiannual value level/pivot is at $34.35. Long-term investors using my "buy and trade" strategy could have booked profits at $47.37 earlier this year, to buy back at $34.35 this month. "Buy and hold" investors are left with fingers crossed.
  • Texas Instruments (TXN) ($28.05) has declining momentum on its daily chart with the stock well below its 50-day and 200-day simple moving averages at $29.88 and $30.59. We began the second quarter with a quarterly pivot at $32.64, which proved to be a great level at which to book profits. The June 4th low at $26.77 was just above my annual value level at $26.45. The was another "buy and trade" opportunity.

  • This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

    At the time of publication, the author had no positions in any of the stocks mentioned.

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