Can the Chips Hold the Break Out?

The Semiconductor industry is highly cyclical. Companies in the sector face huge swings in demand for their products in tandem with peaks and troughs in the broader economic cycle. From the depths of the bear market lows of 2009, the SOX Index, which comprises 30 semiconductor chip manufacturers, has rallied an incredible +840%. 2018 provided the first real test for holders of the chip stocks. The SOX Index peaked in March 2018 and then corrected -27% by December. The risk-on rally that followed in early 2019 has seen the chip-makers explode higher, rallying +48% in four short months. Today, the SOX Index is making new all-time highs. The only negative for the sector, and it is one that I see time and again across the entire stock market, is that relative strength (RSI) and momentum (MACD) are not confirming the price highs. This often happens near the end of major market moves. Time will tell.


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