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The Semiconductor book-to-bill ratio improved for the third straight month to a reading of 0.67 in July. The revised June number was 0.56, and May came in at 0.49. The ratio measures orders placed with chipmakers versus products shipped. A reading of 1.0 reflects equilibrium between orders and shipments.

While the data is encouraging, analysts are hesitant to call a bottom in the semiconductor industry. Byron Walker at UBS Warbug sums it up by saying, "The problem we have with the above data is, it doesn't seem to correlate with reported conditions from the industry." But traders will take any good news they can get, and the Semiconductor Index (SOX.X) is up 2.12%.

Semiconductor Index Daily Chart

The positive data has temporarily prevented the Semiconductor Index from losing support at 537. With the exception of the April low, support at 537 has held seven times over the past twelve months. Semis started to pick up some momentum in July, but broke that trend in August. Now hovering around the zero line, momentum will have to pick up if Semis want to attack resistance around 583. A short-term bullish goal would just be closing above 552.

Triquint Semiconductor Daily Chart

Also helping semiconductor stocks today is Triquint (TQNT). Yesterday the stock took a hit when Merrill Lynch came out and said they expected the company to lower third quarter guidance. Instead the company said on its conference call that is comfortable with their third quarter forecast, and are seeing some signs of cellular phone orders picking up by the end of the year. That has the stock up $2.21 today, and back above the 50- day moving average. But Triquint is still stuck in a symmetrical triangle, with the upper boundary currently sitting at $25. That limits Triquint's upside to $3.75, but if the 50-day moving average continues to hold, the risk is $1.26. That puts risk/reward at 2.98. That almost meets the 3 to 1 requirement, but with Triquint well off its highs for the day, and the bearish momentum trend still intact, this still looks like a risky long play.

Jeffrey Canavan
Assistant Analyst

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