Live Markets: Chip index flashes bullish look

Synaptics Incorporated

24/01/2023 14:05

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    CHIP INDEX FLASHES BULLISH LOOK (0900 EST/1400 GMT)
    Chip stocks are off to a strong start to the year. The
Philadelphia SE Semiconductor index  .SOX  is up 16% so far in
January. On Monday, it ended at a five month high.
    With this, the index appears to have a constructive chart
pattern in the works:
    After losing nearly half its value from its early 2022
record intraday high into its October intraday low, an inverse
head & shoulders pattern, also called a head & shoulders bottom,
appears to be completing, suggesting the downtrend is reversing.
    The index, which ended Monday at about 2,935, is breaking
above the pattern's neckline at around 2,930, on a weekly basis.
    It now remains to be seen if bulls can clearly take control
of the trend, leading to a strong upward thrust. The pattern
projection can suggest an advance to around 3,870, which could
see the index near its 4,068 record high.
    A lack of upside momentum as the neckline is taken out,
ultimately leading to a break of the right shoulder's December
low, at 2,445, can suggest the pattern has failed.
    Meanwhile, of note, since around the time the SOX hit its
October lows, equipment makers have sharply outperformed chip
makers:
    This turn came just several months after President Biden
signed the Chips Act, which seeks to bolster the U.S.
semiconductor supply chain and promote research and development.
    More recently, over the past several weeks, chipmakers are
trying to re-assert themselves. Nvidia  NVDA.O  and Synaptics
 SYNA.O  are the top performing SOX stocks so far this year.
However, it remains to be seen if the ratio can reclaim its
descending 50-day moving average.
    Separately, chip stocks rose on Monday after Barclays
provided upbeat commentary on the sector after what it says was
the worst correction since the tech bubble of the late 1990s.
    Last week, Bernstein stated confidence in chipmakers which
have significantly reduced their earnings forecasts.
    (Terence Gabriel)
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 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)