Weakening Chip Stocks Sounding Strong Economic Warning

How's the economy doing? Look at semiconductor stocks.

Global sales of consumer durables and hand-held devices such as cell phones have been sliding, which is a drag on economic growth. These devices run on computer chips, which makes the semiconductor industry a bellwether for the economy.

TheStreet's Jim Cramer said he favors the semiconductor companies whose products do not go into cell phones. However, he said, reports that Apple (AAPL) -- a holding in his charitable portfolio Action Alerts PLUS -- is cutting iPhone production because of weakening demand is tarring all chip companies with the same brush.

"I wish I could take a stand" on such companies as Avago Technologies (AVGO)  and Skyworks Networks (SWKS)  "but they are so inextricably linked to the fortunes of Apple that I can't risk it," Cramer said.

Exclusive Look Inside:

You see Jim Cramer on TV. Now, see where he invests his money and why. Learn more now. 

From a technical standpoint, the best way to measure demand for semiconductors is by tracking the performance of the PHLX Semiconductor Index and seven of its components: Avago, Skyworks, Applied Materials (AMAT) , Intel (INTC) , Micron (MU) , Qualcomm (QCOM)  and Texas Instruments (TXN) .

The semiconductor index, also known as the SOX, is a subset of the Nasdaq Composite (NDAQ) . It did not set a new, all-time high in 2015 but it set a multiyear high of 751.21 on June 1. Believe it or not, the March 2000 all-time high for the SOX was 1,362.10. What this implies is that the semiconductor industry has not been providing the economic stimulus most market strategists expected.

Sure, the components of the SOX are different from what they were in March 2000. But the key point is the current components could not drive the SOX anywhere near its all-time high. In the late-1990s it was Federal Reserve Chief Alan Greenspan's fear of Y2K, which influenced corporations to upgrade systems to prevent applications to misfire when clocks touched midnight entering the year 2000. This drove demand for computer chips to the moon. There are no such demand drivers today.

Let's take a look at the weekly charts. A negative weekly chart occurs when the weekly close for the market is below its key weekly moving average with weekly sentiment declining below the overbought threshold of 80.00.

The charts show the key weekly moving average in red, the 200-week simple moving average in green, and the weekly momentum reading is shown in red in the study at the bottom of the chart.

Here's the weekly chart for Applied Materials.


Courtesy of MetaStock Xenith

The weekly chart for Applied Materials shifts to negative from neutral given a weekly below its key weekly moving average of 17.98 if the weekly momentum reading declines below the overbought threshold of 80.00. The current reading is 81.0. A key level to hold is the 200-week simple moving average of 17.07, which held at Thursday's low.

The stock closed Thursday at $17.21. After declining 25.1% in 2015, it's down 7.8% after the first four days of 2016. This puts the stock in bear market territory 33.1% below its multiyear high of $25.71 set on Dec. 23, 2014.

Investors looking for short-term trades should enter a good till canceled (GTC) limit order to buy this stock if it declines to $15.85, which is a key level on technical charts until the end of January. Investors looking to reduce holdings should enter a GTC limit order to sell this stock if it rises to $23.05, which is a key level on technical charts until the end of March.

Here's the weekly chart for Avago.


Courtesy of MetaStock Xenith

The weekly chart for Avago shifts to negative from positive but overbought given a close today below its key weekly moving average of 136.52 if the weekly momentum reading declines below the overbought threshold of 80.00. The current reading is 79.33 but it was 80.70 on Wednesday. A key level to hold is the 200-week simple moving average of 70.39.

The stock closed Thursday at $129.05. After gaining 44.3% in 2015, it's down 11.1% after the first four days of 2016. This puts the stock in correction territory 14.3% below its all-time high of $150.50 set on June 1.

Investors looking for short-term trades should enter a good till canceled limit order to buy this stock if it declines to $122.44, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should enter a GTC limit order to sell this stock if it rises to $138.63, which is a key level on technical charts until the end of June.

Here's the weekly chart for Intel.


Courtesy of MetaStock Xenith

The weekly chart for Intel shifts to negative from positive but overbought given a close Friday below its key weekly moving average of 33.50 if the weekly momentum reading declines below the overbought threshold of 80.00. The current reading is 74.59 so a negative chart is highly likely. A key level to hold is the 200-week simple moving average of 27.72.

The stock closed Thursday at $31.84. After declining 5.1% in 2015, it's down 7.6% after the first four days of 2016. This puts the stock in correction territory 16% below its multiyear high of $37.90 set on Dec. 5, 2014.

Investors looking for short-term trades should enter a good till canceled limit order to buy this stock if it declines to $24.92, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should enter a GTC limit order to sell this stock if it rises to $34.41, which is a key level on technical charts until the end of June.

Here's the weekly chart for Micron.


Courtesy of MetaStock Xenith

The weekly chart for Micron is negative but oversold and will likely end the week below its key weekly moving average of 14.73. The weekly momentum reading is 15.85, well below the oversold threshold of 20.00. The stock is also below its 200-week simple moving average of 18.36.

The stock closed Thursday at $13.66. After declining 59.6% in 2015, it's down 3.5% after the first four days of 2016. This puts the stock in bear market territory 62.7% below its multiyear high of $36.59 set on Dec. 8, 2014.

Investors looking for short-term trades should enter a good till canceled limit order to buy this stock if it declines to $13.04, which is a key level on technical charts until the end of next week. Investors looking to reduce holdings should enter a GTC limit order to sell this stock if it rises to $19.18, which is a key level on technical charts until the end of 2016.

Here's the weekly chart for Qualcomm.


Courtesy of MetaStock Xenith

The weekly chart for Qualcomm is negative but oversold with the stock below its key weekly moving average of 49.82 and with its weekly momentum reading of 17.74 below the oversold threshold of 20.00. The stock is significantly below its 200-week simple moving average of 66.68.

The stock closed Thursday at $46.14. After declining 32.8% in 2015, it's down 7.7% after the first four days of 2016. This puts the stock in bear market territory 43.7% below its multiyear high of $81.97 set on July 23, 2014.

Investors looking for short-term trades should enter a good till canceled limit order to buy this stock if it declines to $45.88, which is a key level on technical charts until the end of next week. Investors looking to reduce holdings should enter a GTC limit order to sell this stock if it rises to $57.49, which is a key level on technical charts until the end of March. A weekly close above a key level for January of $46.49 would favor a short-term rebound.

Here's the weekly chart for Skyworks.


Courtesy of MetaStock Xenith

The weekly chart for Skyworks is negative with the stock below its key weekly moving average of 77.47 and with its weekly momentum reading projected to decline to 31.30 this week down from 36.25 on Dec. 31. Key support is the 200-week simple moving average of 47.95.

The stock closed Thursday at $67.16. After a rise of 5.7% in 2015, it's down 12.6% after the first four days of 2016. This puts the stock in bear market territory 40.5% below its all-time high of $112.88 set on June 19.

Investors looking for short-term trades should enter a good till canceled limit order to buy this stock if it declines to $67.01 and $53.25, which are key levels on technical charts until the end of 2016. Investors looking to reduce holdings should enter a GTC limit order to sell this stock if it rises to $84.33, which is a key level on technical charts until the end of January.

Here's the weekly chart for Texas Instruments.


Courtesy of MetaStock Xenith

The weekly chart for Texas Instruments is negative with the stock below its key weekly moving average of 54.99 with its weekly momentum reading projected to decline to 62.18 this week down from 72.72 on Dec. 31. A key level to hold is the 200-week simple moving average of 42.83.

The stock closed Thursday at $51.70. After a gain of 2.5% in 2015, it's down 5.7% after the first four days of 2016. This puts the stock in correction territory 13.8% below its multiyear high of $59.99 set on March 2.

Investors looking for short-term trades should enter a good till canceled limit order to buy this stock if it declines to $42.39, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should enter a GTC limit order to sell this stock if it rises to $59.19 and $59.94, which are key levels on technical charts until the end of March and the end of June, respectively.

 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

More from Opinion

Breaking: Bill Cosby Found Guilty on All Counts in Sexual Assault Retrial

Breaking: Bill Cosby Found Guilty on All Counts in Sexual Assault Retrial

Earnings Season Is Simply Out of Control Madness - How Are You Surviving?

Earnings Season Is Simply Out of Control Madness - How Are You Surviving?

Why Ether and Ripple -- But Not Bitcoin -- Prices Might Come Under Pressure Soon

Why Ether and Ripple -- But Not Bitcoin -- Prices Might Come Under Pressure Soon

Daily Chatter: Here's Where the Markets Stand After Tuesday's Beating

Daily Chatter: Here's Where the Markets Stand After Tuesday's Beating

3 New Investing Myths That Must Be Busted

3 New Investing Myths That Must Be Busted