This surprising sector is breaking out: Technician

Semiconductor stocks are hot.

The SMH, the ETF that tracks semiconductors, is up more than 26 percent from its Aug. 24 low, while the broader S&P 500 is up 9 percent in the same period. According to one technician, the charts could be signaling even more gains to come.

"The semis are in a great technical position," Rich Ross said Wednesday on CNBC's "Trading Nation." In early September, Ross correctly predicted a breakout in the semiconductor space, and given the recent activity, he's more convinced than ever that the good times will continue. "We've seen a heroic move off the lows," added Ross, Evercore ISI's head of technical analysis and a CNBC contributor. He attributed much of the move to booming M&A activity in the space.

Looking at a chart of the SMH, Ross noted a key technical breakout above the 200-day moving average for the first time since late June.

For Ross, perhaps even more important than the move off the low is the technical symmetry forming on the chart. "If you look at the low that we established last year, you'll find a very similar run from the bottom," he said. Ross identified the pattern as a V-shaped reversal, where you will see a sharp decline followed by a rise above the previous peak. The chart then consolidates, only to resolve to the upside.

"Look for some sideways consolidation in the near-term followed by an advance to new highs, just like we saw last year," he said.

The SMH was trading around $55.50, more than 3 percent higher Thursday afternoon.

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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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