Semiconductors

Semiconductor sector following through after our bullish preview

Here is the updated chart of SMH (originally presented per the excerpt below), which I almost don’t believe (if it were a gold stock ETF flashing such an obviously bullish pattern dollars to donuts it would have failed spectacularly):

smh

NFTRH 666(6) wrote up the Semiconductor sector in part due to the current supply/demand fundamentals, in part due to the structurally bullish nature of the modern Semiconductor industry and in part due to the bullish chart of SMH below.

Being a market manager, NFTRH is just covering the basics after noting an almost too obvious bullish technical situation and managing a resumption of the sector’s market leadership in real time lately. But for your reference, consistent and in-depth analysis can be found here at this website I just discovered:

Semiconductor Industry Association (just added to NFTRH.com’s extensive links page under the ‘Economy’ heading) to go along with SEMI, which has been linked for years.

After having been primarily involved with Semi Equipment (the solution to the current Semi supply shortage) I’ve personally expanded out recently to Fab and Fabless chip makers, Semi Test Equipment and maybe soon, specialty Materials.

Here is NFTRH 666(6)’s generalized excerpt on the Semi industry…

Semiconductor Sector

This is a bullish daily chart. The Semiconductor ETF is in a pure uptrend by both the SMA 50 and SMA 200, has a now positive RSI (50+) above its 20 day moving average, MACD that held positive territory (0+) on the recent sharp sector pullback and is now triggered up, and is in an attractive pattern.

smh

SMH, like the SOX index it apes is an amalgam of Fab and Fabless chip and specialty chip makers, Fab equipment, test/quality control equipment, specialty materials and design/engineering. The sector is not the cyclical rollercoaster it used to be because Semiconductors are now running the show in our homes (and not just the homes of gamers), autos, digital currencies, along with more traditional end markets like phones/smart devices and even more traditional personal computers.

As a worker I learned about the old style Semiconductor cyclicality the hard way in the 1980s as the sector just switched off one day, orders were canceled and a down cycle came literally overnight. As a company owner I took that experience and set about putting my company squarely in the medical device/equipment sector, which is anti-cyclical (i.e. nice and smooth). Ah, memory lane (pun not intended).

While still cyclical to a degree, today’s Semi industry has too many tentacles touching too many critical aspects of modern life to have such boom/bust cycles. I like that.
Now of course, the doom that bears have insisted is right around the corner for well over a year now could actually come about and it could take the Semi sector with it, bullish charts or not. No sector would likely escape the carnage when this year+ long cyclical bull market takes its first real correction.

The catalyst for such would-be carnage? As noted recently, I’d see expiring extended unemployment benefits, student loan forbearance and other considerations extended during 2020’s Corona-disaster. Speaking of which, if this Delta Variant keeps gaining steam well, throw some negative hysteria into the mix from that news as well.

But that is bearish ‘what if?’ stuff for a still up-trending stock market and a Semi sector that has under performed lately but maintained its bullish, and going by the chart above, technically buyable status. So sure, the fun could end tomorrow. It’s a high risk market, after all. But not only are many charts of Semi companies similar to the above, the companies are by and large meeting or exceeding the market’s lofty expectations this earnings season.

As such, and as long as the charts remain constructive I hold an increased number of Semi stocks and would like to have a healthy percentage of portfolio holdings from this sector. The fact that in relation to the S&P 500 (SPY) SMH has under-performed since February but last week re-took the still up-trending SMA 200 only adds to that conviction. SMH/SPY ratio…

smh/spy ratio

Semiconductor valuations have been typically lower than high profile Tech stocks due to the sector’s history of dangerous cyclicality and volatility. But now valuations are higher (introducing more risk) because the sector is less cyclical. However, the global chip shortage persists and that has put the Equipment makers (LRCX, AMAT, ASML, KLAC, etc.) in good standing at the leading edge. More equipment = more capacity to alleviate shortages. Not rocket science.

From SEMI on July 27:

“Demand for silicon continues to see strong growth driven by multiple end-applications,” said Neil Weaver, chairman SEMI SMG and Vice President, Product Development and Applications Engineering at Shin Etsu Handotai America. “The supply of silicon for both 300mm and 200mm applications is tightening as demand continues to outstrip supply.”

That is general stuff. Now, for a clear example of why the Semi sector is less cyclical today than even 20 years ago let’s circle back to the sector that I aimed my company toward in order to REDUCE its cyclicality and volatility way back when. That would be the medical device/equipment sector or under another name, MedTech.

A Glimpse into the Future of Medtech

Using a stock I owned for much of 2020, BioTelemetry (since acquired by Philips) as an example, medical technology is progressing by leaps and bounds. This is a remote patient monitoring company (cardiac). Fewer office visits and more consistent monitoring. Efficiency through electronics.

Intuitive Surgical and its remote surgery (Medtronic’s acquisition of Mazor to enter that space as well), Teledoc’s remote medicine, Dexcom’s remote glucose monitoring and a host of other medical companies progressing by leaps and bounds through technology.

Add to this the electronic conversion and automation of healthcare records and we have yet another growth area for Semiconductors. In short, as technology finds its way into our homes, cars, currencies and services like healthcare, so too does the driver of these technologies, which is Semiconductors. From the link above, capacity remains an issue:

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