Your stocks to watch this week are four chip stocks that are breaking out or nearing buy points as the current stock market powers higher: Broadcom (AVGO), Intel (INTC), Texas Instruments (TXN) and KLA (KLAC). Two semiconductor ETFs – iShares PHLX Semiconductor (SOXX) and VanEck Vectors Semiconductor (SMH) – are also breaking out. Broadcom stock, Intel stock and Texas Instruments are in buy zones, while KLA Corp. stock is carving out the right side of a base.
Chip Stocks In Focus
After many chip stocks sold off in 2018, the semiconductor sector is recovering. That bodes well for the stock market uptrend as participation from the chip group has been key in past market cycles. Chips are a big weight in the stock market, especially the Nasdaq. And chips are the backbone of so many products. A healthy chip sector is a good sign for the stock market and the tech economy.
The sector sell-off created long, deep bases for Broadcom stock, Intel stock, Texas Instruments stock and KLA stock. Deep patterns can often reset the base count if they undercut the low of the prior base. That’s the case for chip stocks Broadcom, Intel and KLA. Early-stage bases have a higher chance of success.
Broadcom stock on Friday blasted out of a base with a 286.73 buy point, after Broadcom earnings crushed views late Thursday. Shares rose 8.2% to 290.29 on Friday, in buy range. That entry is the result of a handle that formed after a 14-month-long consolidation. The chip stock’s relative strength line is moving sharply higher, but is not quite at an all-time high.
Intel stock is in buy range from a cup-with-handle base with a 54.20 buy point. Volume on the breakout from the nine-month-long pattern was lackluster on Wednesday. After shares pulled back Thursday, they rebounded Friday back above the entry in trade that was 81% above normal. It’s ideal to see strong volume when a stock breaks out. The RS line is at its best levels since late June but not at consolidation highs. Looking at a monthly chart, Intel’s relative strength has lagged since August 2000.
Texas Instruments Stock
Texas Instruments stock broke out above a 109.59 buy point from long cup-with-handle base Friday. Shares finished the day at 110.74, well within the 5% chase zone. The relative strength line for Texas Instruments stock has been rangebound since hitting a short-term peak in late January. If the stock can continue higher, that might change.
After correcting as much as 35%, KLA stock is moving up in a long consolidation. The chip equipment maker is now 2.4% below a 122.50 buy point. The relative strength line for KLA stock is nearing its May 2017 peak, but that’s still well below the RS line’s all-time high in August 2003.
Semiconductor ETF Breaks Out
Two chip ETFs staged breakouts Friday. The iShares PHLX Semiconductor ETF cleared a 189.33 buy point Friday, while the VanEck Vectors Semiconductor ETF edged above a 106.37 entry intraday but finished at 106.22. The VanEck Vectors Semiconductor ETF is on IBD’s SwingTrader. Investing in sector-focused ETFs lets you take advantage of group moves in the stock market while eliminating single-stock risk.
Current Stock Market Rally
The current stock market rally is holding strongly despite the pullback in early March. While the best time to buy stocks – including chip stocks like Broadom, Intel, Texas Instruments and KLA — is during a stock market rally, make sure to watch out for signs of distribution. Take profits and adjust your portfolio accordingly if another sell-off occurs.
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