Chip Stocks| Investor’s Business Daily

Dow Jones futures fell late Wednesday, along with S&P 500 futures and Nasdaq futures, amid signs that the market is “due” for a pullback of some sort. The Dow Jones, S&P 500 index and the Nasdaq composite rose again in Wednesday’s stock market.  Chip stocks led, and they’re outperforming in the 2019 stock market rally, a healthy sign. Big chip buyer Apple (AAPL) also rallied. Beaten-down chip stocks Micron Technology (MU), Lam Research (LRCX) and Apple supplier Skyworks Solutions (SWKS) were big winners. Only a few chip stocks so far are setting up buy points, notably Broadcom (AVGO) and Xilinx (XLNX).




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Dow Jones Futures Today

Dow Jones futures fell 0.4% vs. fair value, off overnight lows. S&P 500 futures lost 0.5%. Nasdaq 100 futures retreated 0.55%. While the major averages closed higher, they had a bit of a wobbly finish after President Donald Trump stormed out of a meeting with congressional leaders aimed at resolving the government shutdown.

Remember that action in Dow futures and elsewhere doesn’t necessarily foreshadow actual trading in the next regular session.

2019 Stock Market Rally

When the stock market correction intensified heading into Christmas, it appeared clear that the market was due for some sort of bounce, even if only for a day or two. That didn’t happen until after Christmas.

The Nasdaq has now rallied in nine out of 10 sessions. It’s just below its 50-day line. The tech-heavy index hasn’t closed above that key support since Oct. 4. The Dow Jones and S&P 500 also are nearing their 50-day averages. One could argue that the stock market is now due to pull back or move sideways. But that doesn’t mean it’ll happen soon or if it’ll be a blip.

Why Chip Stocks Matter For 2019 Market Rally

One positive for the 2019 stock market rally is the performance of chip stocks. The Philadelphia Semiconductor Index, or SOX, rose 2.5% Wednesday, moving back above its 50-day line. The RS line has been trading higher for about two months. The iShares PHLX Semiconductor ETF, which tracks the SOX, is shown here:

The SOX had been weak since late 2017 and especially since mid-2018. Why does that matter?

First, chipmakers are a big share of the market, especially technology. But chips also are in so many things, from the Apple iPhone to laptops and servers but also cars and seemingly everything else. If chip stocks are struggling, it’s a bad sign for many other companies and their stocks.

Bottom line: It’s rare to have a sustained stock market rally without chips at least participating.

Wednesday’s chip gains were largely in beaten-down names such as Micron stock and Lam Research stock, which both jumped 5%. Skyworks Solutions (SWKS), an Apple supplier, rose 3.8% despite warning on weak smartphone demand late Tuesday.

Apple stock itself climbed 1.7% on Wednesday, leading the Dow Jones. Perhaps the tech titan is signaling a bottom, with so much bad news priced in. But Wednesday’s modest outperformance aside, Apple stock has largely been following the 2019 stock market rally, not leading. Its RS line is barely off recent lows.

Chip Stocks Setting Up

Top chip stocks in bases with proper buy points are still scarce.

Xilinx stock, which is on the IBD Leaderboard watch list, rose 0.9% to 88.84. It’s still in buy range from a rebound of its 50-day line. Also, if shares hold in the current range through Friday, Xilinx will have a cup base with a traditional buy point at 95.28.

Broadcom stock is in a 13-month consolidation with a loose handle buy point of 261.69. Broadcom, which is an Apple supplier and much more, rallied 4.3% to 246.28 on Wednesday.

Still, just having chip stocks participating in the 2019 stock market rally is a positive sign.

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