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Semi’s Break Out on Strong Momentum

David Becker
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The Market Vectors Semiconductor ETF (SMH) has broken out to the highest level in fourteen years. Chip leaders include Applied Materials (NASDAQ:AMAT) , Lam Research (NASDAQ:LRCX) , SanDisk (NASDAQ:SNDK) and Broadcom (NASDAQ:BRCM) , which hit 52-week highs on rising volume. Their relative strength lines broke out as well. SanDisk and Lam Research hit record highs.

Monthly charts continue to paint a bullish picture for chip stocks. The monthly bars show Applied Materials having risen above its 2007 high to reach the highest level in 11 years. Its relative strength index (which is an oscillator that measures momentum along with overbought and oversold levels) has been rising since 2012 and also looks positive. The Lam Research price is rising above its 2007 peak to reach a new record. Its RS line is rising as well. The SanDisk chart shows that price action is also trading at a new record. Its RS line is close to doing the same.

The combination of the RSI breaking out to new highs in tandem with price action reflects accelerating positive momentum for the SMH, which points to higher prices. The next level of target resistance for the SMH is the November 2000 highs near 52.70. Support is seen near the former breakout level at 46.50. Additionally support is seen near the 50-day moving average at 45.20 and then the 200-day moving average near 42.20.

Momentum is strong as the MACD (moving average convergence divergence) index prints at its highest levels since February of 2014. The trajectory of the index is strong after the MACD generated a buy signal in mid-May. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.

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