Don’t Forget About the Chips

The Nasdaq is trying to stabilize, which could draw buyers back to semiconductors.

Chip stocks like NXP Semiconductors, Broadcom and Lam Research were some of the biggest gainers in the Nasdaq-100 last week. That helped push NDX ahead of the S&P 500 for the first time in five weeks. The relative strength also came amid two positive weeks for the Philadelphia Semiconductor Index.

The SOX chart above shows our Smart Relative Strength script with a 10-day interval.

This chart highlights underperformance in the broader SPDR Technology ETF in the same period:


This is noteworthy for two reasons. First, almost every chip company reported strong numbers last earnings season. Second, semiconductors are highly cyclical. Unlike high-multiple software stocks, they stand to benefit from the economy reopening. That’s especially important at a time when investors are unloading expensive growth stocks like Zoom Video Communications (ZM).

In addition to rebounding more quickly than other big tech names, SOX is now battling a downward-sloping trend line that began in mid-February. Traders may look for a breakout if the broader Nasdaq stabilizes or bounces in coming sessions.

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