Press Long Semi Bets
A month ago we put together a semiconductor-related post that highlighted the likelihood of the group vastly out-performing the broader market.
Since then both the SMH ETF and the SOX Index are up ~10% vs. the SPX. Not a bad relative move for one month.
As a result of this week’s additional gains, the ratio of the SOX vs. SPX is now clearing line resistance (4) in the chart below. This line is the last major piece of resistance the ratio has had in its way subsequent to breaking out of the long-term flag/consolidation pattern b/t lines (1), (2) and (3) in July.
Should this week’s to-date gains in the ratio hold through week-end, the aforementioned break above line (4) should result in a second and more aggressive phase of relative out-performance in semiconductors moving forward.
Thus, though the group is certainly extended in the very short-term, I would use the technical break-out to add to any existing semiconductor-related bets.
The only noteworthy resistance left on the chart is at line (5), or 0.40 on the ratio, some ~12% higher vs. the current print. In my view, given the group has under-performed for so long I doubt the relative performance move stops there.
Instead, I envision this move for semis being multi-year in nature, analogous to the call we made on airlines in later 2012.