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