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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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