A momentum low has been setting up in the Semiconductor space. During the Wealth365 presentation on Tuesday, I mentioned that some of the Semiconductor stocks were setting up. On Thursday, we saw the Semiconductors surging, even though the overall market is grinding sideways for the week.
Below is the chart for the Semiconductor ETF. Notice the PPO momentum indicator (bottom panel) has broken the four-month red trend line as well as crossing above the signal line. Very bullish. I have marked a green down trend line that goes back for one year. This will be an important momentum trend to break. We can visualize a long-term down trend in 2014 -2015-2016 on the PPO that broke and created a huge upward thrust.
The Full Stochastic shows the move above 50 which is a very positive signal as a low stochastic is usually indicative of a larger downtrend. Notice when the stochastic is above 50, the ETF is usually in an uptrend.
Both relative strength indicators are also very positive. The relative strength compared to the $SPX shown in a shaded purple area chart is making three month highs. Bullish. The SCTR ranking is showing the price action surging to top quartile performance. Bullish. I discussed this indicator on the Wealth365 summit presentation.
On the daily chart below, we can get a more granular view of the weekly information shown above. The volume acceleration on the breakout was particularly important. While there will be overhead resistance all the way up to the prior highs, this high-volume breakout is a strong signal of more interest.
The intraday sector moves also suggest a move towards cyclical strength and away from defensive stocks even on a bearish few days since options expiration. This bodes well for resuming the uptrend.
The growth areas of the market were some the better performers on Thursday even though the market gapped down to start.
Over the last week, which is an important reflection time since the market made a short term top Friday, January 18th, we can see where the market is focused. The utilities had a strong week as did the financials. The rest of the sectors were mixed.
We’ll want to see the offensive growth sectors on the left take back control over the next week. While some correction is expected after going straight up for four weeks, we need to watch closely as this level for the overall market is important.