RF Micro Merger-TriQuint Puts Focus on Semiconductor Sector Leadership

NEW YORK (TheStreet) -- On Monday RF Micro Devices (RFMD) announced that it plans to merge with TriQuint Semiconductor (TQNT) to form a new company with shareholders of each owning half. Both stocks surged by more than 20% on the news. 

The merged company will combine RF Micro's chip solutions for mobile communications with TriQuint's analog and mixed signal circuits for communications applications.

As this news was released, I was preparing my analysis of the Market Vectors Semiconductor ETF (SMH), which consists of 24 companies in the semiconductor industry, and this ETF has set new highs for six consecutive trading sessions.

RF Micro and TriQuint are not among the 24 stocks within this semiconductor ETF, but by crunching the numbers for the 24, investors can consider other possible mergers and acquisitions.

Year to date, nineteen components of the semiconductor ETF are higher. They are led by Skyworks Solutions (SWKS), which is up 20.4%. In second place is 3D-graphics chip provider Nvidia (NVDA), which is up 18%.

Among the five year-to-date decliners, the biggest loser is ARM Holdings (ARMH), which is down 10.2%.

The PHLX Semiconductor Index (SOX), which has 30 components, has set eight consecutive multiyear intraday highs and is up 5.3% so far in 2014. RF Micro and TriQuint are not components of the SOX.

Crunching the daily levels, the SOX has been above its 200-day simple moving average since Jan. 2, 2013. Back then, the 200-day was around 390, and today it's at 496.32. The SOX is also well above its 21-day and 50-day SMAs at 541.45 and 534.20, respectively.

The weekly chart for the SOX (563.36) is positive but overbought with its five-week modified moving average at 543.92 and its 200-week SMA at 415.05. Notice how the 200-week SMA provided a longer-term reversion to the mean since the semiconductor bubble popped in early-2000. Since then, the 200-week SMA has been tested or crossed in nine of the last 13 years.

Courtesy of MetaStock / XENITH


Crunching the Numbers With Richard Suttmeier



Today's table shows the gains and losses for the 24 components of the Market Vectors Semiconductor ETF. Note that 19 have gains for the year to date and five have declines as shown in red in the % Change column.

In the column labeled "Last 12-Month Return" I show the percentage gain or loss over the last 12 months. In today's table, the only losers over the last 12 months are Broadcom (BRCM), which is down 9.1%, and Taiwan Semiconductor (TSM), which is down 3.1%.

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.

Interpretations: (stocks below a moving average listed in Red are below that moving average)

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three to five year horizon. (even Apple declined to its 200-week SMA in June 2013)

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six to 12 month horizon. (even Apple tested or crossed its 200-day SMA in nine of the last 10 years)

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

Analog Devices (ADI) ($50.96 up just 0.1% YTD) has a positive weekly chart. The buy-and-trade strategy is to use GTC limit orders to buy weakness to $50.24 or to reduce positions on strength to $52.50.

Altera Corp (ALTR) ($35.91 up 10.5% YTD) has a positive but overbought weekly chart. The buy-and-trade strategy is to use GTC limit orders to buy weakness to $34.80 or to reduce positions on strength to $37.84.

Applied Materials (AMAT) ($19.07 up 7.9% YTD) has a positive weekly chart and the stock set a new multiyear intraday high at $19.38 on Monday. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $17.69.

Advanced Micro Devices (AMD) ($3.71 down 4.1% YTD) has a neutral weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $3.25.

ARM Holdings ($49.14 down 10.2% YTD) has a positive weekly chart. The buy-and-trade strategy is to use GTC limit orders to buy weakness to $47.01 or to reduce positions on strength to $49.67.

Atmel Corp (ATML) ($8.09 up 3.3% YTD) has a neutral weekly chart. The buy-and-trade strategy is to use GTC limit orders to buy weakness to $7.56 or to reduce positions on strength to $8.52.

Avago Tech (AVGO) ($59.57 up 12.7% YTD) has a positive but overbought weekly chart and set a new multiyear intraday high at $60.00 this morning. The buy-and-trade strategy is to use GTC limit orders to buy weakness to $54.38 and to reduce positions on strength to 64.94.

Broadcom ($30.74 up 3.7% YTD) has a positive but overbought weekly chart. The buy-and-trade strategy is to use a GTC limit order to reduce positions on strength to $32.12.

Cree Inc (CREE) ($61.06 down 2.3% YTD) has a neutral weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $55.64 or to reduce positions on strength to $64.80.

Intel Corp (INTC) ($24.63 down 5.1% YTD) has a negative weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $20.26 or to reduce positions on strength to $26.33.

KLA-Tencor (KLAC) ($65.35 up 1.4% YTD) has a positive weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $62.28.

Linear Tech (LLTC) ($46.26 up 1.6% YTD) has a positive weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $44.89.

LAM Research (LRCX) ($52.62 down 3.4% YTD) has a positive weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $50.58 or to reduce positions on strength to $53.18.

Microchip Tech (MCHP) ($45.27 up 1.2% YTD) has a positive weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $38.80 or to reduce positions on strength to $47.05.

Marvell Tech (MRVL) ($15.42 up 7.2% YTD) has a neutral weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $13.97 or to reduce positions on strength to $16.87.

Micron Tech (MU) ($24.75 up 13.8% YTD) has a positive but overbought weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $18.60 or to reduce positions on strength to $25.76.

Maxim Integrated (MXIM)($31.75 up 13.8% YTD) has a positive but overbought weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $18.60 or to reduce positions on strength to $25.76.

Nvidia ($18.91 up 18% YTD) has a positive weekly chart and set a new multiyear intraday high at $19.05 on Monday. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $17.65.

On Semiconductor (ONNN) ($9.42 up 14.3% YTD) has a positive but overbought weekly chart. The buy-and-trade strategy is to use a GTC limit order to reduce positions on strength to $9.88 then $10.37.

Skyworks Solutions ($34.40 up 20.4% YTD) has a positive but overbought weekly chart and traded to a new multiyear intraday high at $34.60 today. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $32.75.

Teradyne (TER) ($20.19 up 14.6% YTD) has a positive but overbought weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $17.40 or to reduce positions on strength to $21.81.

Taiwan Semiconductor($17.69 up 1.5% YTD) has a positive weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $16.25 or to reduce positions on strength to $18.62.

Texas Instruments (TXN) ($44.45 up 1.2% YTD) has a positive weekly chart and set a new multiyear intraday high at $44.83 on Monday. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $41.82 or to reduce positions on strength to $45.49.

Xilinx Inc (XLNX) ($51.34 up 11.8% YTD) has a positive weekly chart and set a new multiyear intraday high at $51.90 on Monday. The buy-and-trade strategy is to use a GTC limit order to buy weakness to $47.00.

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

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at ValuEngine.com.

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