Chip Off The Old High

One of the leading sectors for much of 2014 has been the semiconductor group. And despite some weakness this month, chip stocks remain among the leaders that have not suffered much in the way of threatening damage. And in fact, the group is pulling back into a potentially attractive spot from the long-side.

We mentioned back in June that the PHLX Semiconductor Index (SOX) was for the first time bumping up against the 38.2% Fibonacci Retracement level of the 2000 to 2008 decline. For the next 5 months, it waffled back and forth along that line. In late November the SOX broke out above the 5-month consolidation pattern. During the recent weakness, it has pulled back by about 5% toward the previous highs. Today, it bounced almost precisely off of its prior highs from September and November. This level may be an attractive spot for bulls, if this leader is to resume its uptrend.

Additionally, there is potential support around 644 in the form of the 38.2% Fibonacci Retracement of the post-October bounce, the 50-day moving average and an early November consolidation pattern from which it launched its breakout. A break of that level may indicate more vulnerability in the SOX.

*Not a recommendation*

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