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Are the semiconductors done\?

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"Stick a fork in them! There done!" is what a bear is saying. "Not so fast!" say's the bull. "The two key stocks in the group are still holding trend!"

The line in the sand has been drawn, and it most likely comes down to how the world's largest chipmaker Intel (NASDAQ:INTC) $26.98 -3.2% and the world's largest semiconductor equipment maker Applied Materials (NASDAQ:AMAT) $22.34 -2.27% trade from here. Both are nearing their bullish support trends and things are getting dicey!

Intel Chart - $1 & $0.50 box

If you're going to monitor a sector, then you might as well monitor the "big guns" in the respective groups. There is no "bigger gun" in the chipmaker than Intel (INTC). Bulls are looking at a bearish vertical count of $22, but looking for the bullish support trend at $25 to provide the bounce. Point and figure chartists look for the bullish support trend to provide institutional support from those that "missed the move" at $33. It has been my observation in the past that the chipmakers were weaker than the chip equipment stocks. INTC was a major part of that analysis as the stock was giving sell signals.

Applied Materials Chart - $1 & $0.50 box

The "other big gun" in the semiconductors is the worlds largest chip-equipment maker Applied Materials (AMAT). If institutions are looking for exposure to the group, then the bullish trend is as good a place to be looking for institutional buyers as any. A trade at $20 in AMAT is trouble.

Traders in the sector should be monitoring both AMAT and INTC. I've always thought that the big stocks will lead in an advance. AMAT has had more of a "history" with the bullish support trend than INTC has, but both are worth monitoring. As mentioned yesterday, I like AMAT for bullish traders as risk/reward is most favorable. Stock traders can look for entry and current levels, but follow with a stop at $20. I like the AMAT June $22.50 calls (ANQFX) $2.20, no stop and target $27 before expiration.


I also feel an AMAT bulls wants to see the Semiconductor Index (SOX.X) show support at/near the $485 level. The SOX.X is trading 487.18 here. The $485 level looks to be somewhat of a "pivot" level for the SOX.X dating back to the October rally highs, which served as resistance, but when broken on November 2nd, has then served as support.

NASAQ-100 trades lower regression

The NASDAQ-100 Index (NDX.X) has traded the lower end of our regression channel today and broken below the 19.1% retracement level that defines the recent rally from the September lows. With the NASDAQ-100 Bullish % ($BPNDX) at "oversold" levels below 30%, bears in the sector should be lowering some stops to help protect gains against a rally. A break back above the 1,212 level would have a bear assessing near-term risk to the mid-level of regression, near the 1,280 level.

Jeff Bailey
Senior Market Technician
Option Investor

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