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Chips Trying to Follow Through

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Semiconductor stocks are trying to follow through on yesterday's gain, but are having a little trouble getting started this morning. With Applied Materials reporting after the bell, and IBM reportedly dropping AMD chips from their North American PCs, chip investors are a little hesitant.

Semiconductor Index Daily Chart

Or perhaps it is because the Semiconductor Index (SOX.X) is stuck at the 50-day moving average, and 50% retracement level at 607. Just above is the 200-day moving average, and 61.8% retracement at 644. 644 is the top of the trading range the SOX has been stuck in since June, and 540 marks the bottom. If we go back to mid-April, the range widens to 700 to 540.

Applied Materials Daily Chart

Applied Materials (NASD:AMAT) gave a buy signal in late July, and then managed to break the bearish resistance line in August. But the stock ran out of steam and reversed back into a column of Os, falling more than 50% of the previous column. By doing so, AMAT gave a high pole warning. This warning tells us that something might be wrong with the supply/demand picture. Should AMAT break its bullish support line, the picture turns more bearish. Should AMAT give a sell signal at $41, supply will be back in control of this stock.

Jeffrey Canavan
Assistant Analyst

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