SEMICONDUCTOR STOCKS

A Foundation for the Second Tech Boom

One of the necessary technical prerequisites for a long, sustained bull market is that stocks must have traced out or broken out of long bases. The tech boom in the 90s was a good example. The reason why the market soared in the 90s was that in the early – mid 90s, tech issues, one by one, broke out of long dormant bases. A boom ensued and the party didn’t end until March, 2000.

Oil was another excellent example. In July, 2004, Oil broke out of a 23-year base when it penetrated resistance in the $40 – $42 area which had proven to be an area of formidable resistance. I opined then that oil will exceed $100. Subsequently, it reached a record high of $147.27 (July 2008).

In 2010, I mentioned no less than three times that the huge bottoms traced out by the tech issues have bullish implications for the equity market as techs represent the biggest weight on the S&P and they are economy-sensitive (see July 15, 2010 report, “High Tech, Big Bottoms – Bullish Implications for the Equity Market”, July 17, 2010 report, “More on High Techs, Big Bottoms”, September 10, 2010 report, “Big Bottoms=One Big Horny Beast”, and November 15, 2011 report, “Long Base Stocks for the Long-Term). I noted that the coming tech boom could rival the boom in the 90s as the bases traced out by many of the tech issues are longer and deeper than those witnessed in the 90s.

As can be seen below, the hug bases traced out by the semiconductors are particularly impressive and augur bullishly for the economy and the stock market. The semis represent the heart of the tech industry. Moreover, they are economy-sensitive. The duration and magnitude of these bases (and a number of them have already broken out) are telling investors that economic momentum will not only accelerate, but the recovery will last much longer than most expect.

Accordingly, these stocks should be monitored closely and should be accumulated when oversold.

LEON TUEY

January 22, 2013

MARKET VECTORS SEMICONDUCTORS (SMH $34.17)

SMH has traced out a 10-year base with resistance in the $35.50 $36.50 area. An upside breakout is assured. Note in November, 2010, stock broke out of a “head-and-shoulders” bottom. Technical measuring implications call for a move to $42 plus and that target has not been met. Also, in December, 2012, SMH broke out of a “triangle” consolidation pattern which call for a short-term target of $37 – $38. Upside breakout from this long base augurs well for the economy and for the equity market as the semis are economy-sensitive and techs represent the biggest weight on the S&P. This sector alone will help to drive the S&P to record highs, not to mention the upside breakouts in the Financials, and emerging strength from the cyclicals.

ANALOG DEVICES (ADI $43.06)

In September, 2010, ADI penetrated a 6-year plus downtrend. That downtrend line was successfully tested in the 2011 market correction. Not surprisingly, in December, 2012, stock broke out of a 10-year base. Long-term, a target of $70 plus can be projected.

ALTERA CRP. (ALTR $35.64)

In 2010, stock broke out of a 7-year base. Subsequently, it reached a high of$48.87, A correction ensued as stock was grossly overbought. The correction assumed a “down-sloping wedge” pattern suggesting that selling is nearing exhaustion and uptrend will resume. Good support is indicated in the $29 – $30 area. A close above trendline “C – D” will confirm that the bull market has resumed.

FEI CO. (FEIC $59.98)

In April, 2011, stock broke out of an 11-year base. This is not surprising as in December, 2010, it broke out of a “head-and-shoulders” bottom. Technical measuring implications called for a move to $40 plus. Also encouraging is that since August, 2010, stock has outperformed the S&P by a wide margin. A secular bull market is in place. Short-term corrections notwithstanding, further gains lie ahead.

INTEL CORP. (INTC $21.25)

In 2011, stock broke out of a large “head-and-shoulders” bottom. Technical measuring implications called for a move to $33.00 or higher. That target has not been met. Subsequently, stock reached a high of $28.72 where resistance was encountered. An overbought correction ensued. In the week of November 26, an intermediate buy was signalled as stock was grossly oversold and momentum improved. Penetration of resistance in the $29 - $30 area will help to complete an 11-year base and record highs would then be expected. Given the upside breakout in 2011, the large base will be completed.

KLA-TENCOR CORP. (KLAC $51.84)

Stock has traced out a 12-year base and an important downtrend line (Line “A – B”) is being tested. A decisive close above $55 would represent an important breakout. That would mark the beginning of a secular bull market and would carry stock to record highs.

KULICKE and SOFFA INDUSTRIES (KLIC $12.58)

Stock has traced out a 10-year base. An upside breakout is assured as in January, 2011, stock broke out of an 8-year downtrend and completed a “head-and-shoulders” bottom. Technical measuring implications call for a move to $18 plus. Penetration of Line “A – B”, however, would call for a move to $25 plus.

LINEAR TECHNOLOGY (LLTC $36.48)

In December, stock broke out of a 10-year base. Technical measuring implications call for a move to $53 plus. Relative Strength (green line at bottom) is improving as it has been tracing out “fanning” downtrend lines.

LSI CORP. (LSI $7.33)

Stock appears to be tracing out a huge “head-and-shoulders” that extends back to 2003. An upside breakout is favored as in early 2011, stock broke out of a “head-and-shoulders” bottom. Technical measuring implications call for a move to $11 plus. Penetration of Line “A – B”, however, would call for a long-term target of $17 plus.

MICREL, INC. (MRCL $10.21)

Along base is being traced. Stock is finding support in the $8.50 – $9.00 area. A close above Line “A- B” would help to complete a 9-year base and a long-term target of $25 plus would then be readable. A close above its 2011 – 2012 will ensure an upside breakout.

NANOMETRICS INC. (NANO $15.55)

In December, 2009, stock broke out of a 6-year downtrend. Moreover, a 10-year base has been traced. A close above Line “A – B” would have bullish implications for the long-term and a target of $43 plus would then be readable.

TERADYNE, INC. (TER $17.13)

Stock has traced out a 6-year base. Note the “fanning” downtrend lines (technically bullish). Also, in December, 2010, stock broke out of a “head-and-shoulders” bottom. Technical measuring implications call for a move to $25 plus which would break Line “A – B”. Moreover, since February, 2011, stock has been consolidating in a “triangle” pattern and is poised to breakout. Penetration of Line “A – B” (which is assured) would help to complete the base and a target of $36 plus would then be readable.

TEXAS INSTRUMENTS, INC. (TXN $33.52)

Stock has been giving bullish signals. Note the “fanning” downtrend lines and the this month’s upside breakout from a “symmetrical triangle” pattern. The breakout calls for a move to $43 plus which implies a breakout above important Line “A – B”. Penetration of Line “A – B” would help to complete a 6-year base and a target of $58 plus would then be readable.

XILINX, INC. (XLNX $37.17)

In December, 2009, stock broke out of a 6-year downtrend. As can be seen above, stock has traced out a 9-year base with resistance near the $38 – $40 area which is being tested. A decisive uoside breakout would have bullish implications for the long-term and a long-term target of $59 plus would then be readable.

ZYGO CORP. (ZIGO $16.15)

In October, 2010, stock broke a 4-year downtrend and completed a “head-and-shoulders” bottom. Technical measuring implications call for a target of $20 plus and that target was met. Since then, stock has been consolidating. A 9-year base has been traced with resistance in the $20 – $21 area. The duration and magnitude of this base can support a move to $40 plus.

LEON TUEY

January 24, 2013