This sector could signal more gains for market: Technician

Semiconductors are making a comeback, and that could mean big things for the overall market—at least according to one technician.

"The chart of the semiconductors has broad implications for China, the U.S., emerging markets and perhaps most importantly—Apple," Rich Ross said Tuesday on CNBC's "Trading Nation."

Semiconductors, which are the foundation of modern technology, tend to trade in tandem with the S&P 500, acting as a proxy for the health of the overall economy. "They are the lifeblood of a world increasingly driven by technology," said Ross. "Metaphorically speaking, when the semis sneeze, the market catches a cold and vice versa."

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Looking closely at a chart of the PHLX Semiconductor index, the SOX, Ross noted that the space was "beaten up more than any group in the recent correction." The index fell more than 27 percent from its June high to August low. "But importantly, it's rallied 14 percent from the low, outperforming the S&P 500 during that period," he added. Since its low on Aug. 24, the S&P 500 is up more than 6 percent. "That relative strength off the low is a nice indicator of future success."

For Ross, there are three important levels to watch on the SOX chart: the 50-day moving average, which comes in at $630; the neckline of a broad top at $650; and finally the 150-day moving average at around $683.

"A break above that 50-day moving average could bring us as high as that 150-day moving average near $680," said Ross, adding that the longer-term moving average has served as support for the past two years. "That reinforces its importance." That's a roughly 9 percent move from its current trading price of around $625.

"I'd be a buyer here," Ross continued. "Watch your semis."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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