Top May Be Near for Semis

The Nasdaq's momentum is in decline, and a downturn in chips could be just a matter of time.
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Momentum remains strong for some semiconductor stocks, but time appears to be running out amid the evolving correction on the

Nasdaq

.

Advanced Micro Devices

(AMD) - Get Report

,

Broadcom

(BRCM)

and

Lam Research

(LRCX) - Get Report

still have vigor, while negative divergences are beginning to show up for

Marvell Technology

(MRVL) - Get Report

,

National Semiconductor

(NSM)

and

Rambus

(RMBS) - Get Report

.

ValuEngine has a sell rating on Rambus and a hold on the other chipmakers. All are more than 20% overvalued, with weekly chart profiles that show overbought momentum. National Semi is showing the first signs of losing momentum. How long can these stocks hold up with the weekly chart profile for the Nasdaq showing declining momentum? It's just a matter of time if the Nasdaq ends the week below its five-week modified moving average at 2262.

Focus on the Philadelphia Semiconductor Sector Index (SOX) for the first signs of a directional change in these stocks.

The SOX outperformed the Nasdaq in January, rising 12.4% vs. the Nasdaq's 4.6%. The SOX's leadership is important for the entire market this year, but the SOX appears vulnerable after peaking at 559.60 on Jan. 27, just shy of the January 2004 high of 560.68.

In April 2005, I turned bullish on technology and forecast a rally led by the chipmakers. My model showed semiconductors were 32.9% undervalued then; the industry ended January just 3.1% undervalued -- quite a turnaround, and a serious warning for caution now.

The SOX has been resilient, as its weekly chart profile shows overbought momentum, and the five-week MMA is 514.00. This gives the long-term investor the chance to pair back positions in overvalued chip stocks before this industry peaks. A weekly close below my monthly pivot of 529.84 would be the first warning that a top is in place for the SOX. If the weekly chart profile shifts to negative, the risk is to my quarterly pivot at 488.82, with my quarterly support far below at 394.12.

The Stronger Chipmakers

These companies may move higher, but beware of the risks.

Advanced Micro Devices set a high of $42.42 on Feb. 2, but my model shows risk to monthly pivots of $38.49 and $35.01. A weekly close below the five-week MMA of $34.17 (and rising each week) indicates risk to my annual value level of $28.61 by the end of the year.

After setting a high of $71.87 on Feb. 8, my model shows there is a chance of Broadcom slipping to my monthly pivots of $62.52 and $60.89. A weekly close below the five-week MMA of $57.57 (and rising each week) indicates risk to my quarterly value level of $48.62.

Lam Research set a high of $47.50 on Feb. 2, but my model shows risk to the five-week MMA of $40.92 (which is rising each way). My annual value level is $40.07.

Chipmakers Slowing Down

New highs seem unlikely in the following stocks:

Marvell Technology set a high of $73.67 on Jan. 27. My model shows risk to my monthly pivot of $64.90. A weekly close below the five-week MMA of $62.33 (and rising each week) indicates risk to my quarterly value level of $43.82.

After setting a high of $29.55 on Jan. 27, my focus for National Semiconductor is on its performance relative to the five-week MMA of $27.26. A weekly close below it would signal risk to my annual value level of $20.51. It is trading below my monthly risky levels of $29.96 and $30.72.

Rambus set a high of $36.15 on Jan. 17; if it closes the week below its five-week MMA of $25.39, there is risk to my semiannual and quarterly value levels of $24.13 and $21.35, respectively.

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

TheStreet.com Technology Report

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 --

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to send him an email.