Semis Fully Cooperating:
Last week the SMH rose by 4%, its FIFTH time doing so since the week ending 6/7. Monday is showing good follow through adding 1.5%. The last 3 times the ETF rose at least 4% in a week, the following week gained at least 2%. ZERO of the five however would be considered an accumulation week (decent gain in well above average volume). Perhaps those non believers will become so soon, and continue to propel this group EVEN higher. Earnings among stocks in the space have been mostly positive, with ON gaining more than 10% today. This week will bring more reports from the likes of NXPI AMD LSCC and QRVO. Below is the ratio chart comparing the SMH to the IGV, and there is no reason to believe the relationship should come to an end soon. And that is even with some better action among stalwarts like MSFT and TTD. Remember the chart below is a ratio chart, and BOTH the semi and software groups can act well on an absolute basis, although it will illustrate which one is acting better relatively.
Contrasting two leading peers often leads to valuable clues in how to position capital. Trend followers will deploy capital to the stronger of the two, while mean reversion players may take the opposite approach. On a YTD basis GRMN has nearly doubled the 20% gain TRMB has seen thus far in 2019 (Garmin sports a dividend yield of 2.6%, while Trimble has no dividend). Not surprisingly on a shorter time frame GRMN looks better just 2% off its most recent 52 week highs, while TRMB sits 15% off its own recent yearly peak. Both charts however look decent, as GRMN which REPORTS earnings this week, is trying to break above a bull flag pivot of, and TRMB shows a bullish ascending triangle that aligns with both 200 day SMA resistance and the round 40 number. Whatever strategy you employ let PRICE action guide your process. Each of these stocks could perform well or poorly.
Some “old tech” semiconductor names have reacted strongly to recent earnings reports, with two notable stocks going in opposite directions. INTC soared more than 8% last Friday, and TXN fell by nearly the same amount last Wednesday. Another old timer getting ready to release numbers is RMBS, and the chart below is how it appeared in our 9/25 Technology Note. It has see nice recent accumulation, despite FIVE consecutive negative earnings reactions, down .2, 3.7, 3.7, 4.8 and 5.8% on 7/30, 4/23, 1/29, 10/30 and 7/31/18 (REPORTS 11/4 after close). Like a true leader it is giving investors an opportunity to add to the stock on the way UP, and that would be a CLOSE above a cup base pivot of 14.39.