The Semiconductor Sector Is On Break-Out Alert

A Rising Tide Of Sentiment Is Lifting The Semiconductor Sector
There is a rising tide of bullish sentiment lifting the semiconductor sector that you need to know about. The sector has been producing better than expected results, providing a positive outlook, and is supported by a convergence of trends that point to long-term, sustained growth. The heart of these trends is the ongoing adoption of technology by our global society that began in the early ’80s. That trend was accelerated by the pandemic and now the switch to 5G, both of which have accelerated the use of the Internet of Things. Basically, we’re in the early stages of a major technological revolution that has several decades to play out and it all hinges on semiconductors.

NXP Semiconductors Raises Guidance

The latest news from NXP Semiconductors (NASDAQ:NXPI) is only the latest evidence that business within the semiconductor industry is on the verge of booming. The company released preliminary results for the 3rd quarter that are well above the mid-point of guidance and the consensus target. The company says it has seen increased demand in all sectors with notable strength in the Automotive and Mobile markets.

"Relative to the mid-point of our guidance, we experienced a material improvement in demand across all end markets, but particularly in the Automotive and Mobile end markets. Additionally, demand improved in both our direct and distribution channels,” says CEO Kurt Sievers.

The automotive news is particularly interesting because it sheds light not only on the EV and self-driving car market but into the automobile industry as a whole. With auto sales outpacing consensus and the EV/self-driving market looking at a 20% CAGR for the next two decades demand from this sector will be strong for a long, long time. 

Micron Technology Raises The Outlook For Memory Chips

Micron (NASDAQ:MU) reported its fiscal 4th quarter a week or so ago and blew past the consensus. Along with this, it provided an updated outlook for supply and demand that bodes well for the memory chip sector. Although the company expects oversupply to weigh on pricing through the end of the year, demand is expected to outpace supply for DRAM by 20% in 2021. Along with that, a large order is expected from Amazon that will greatly reduce supply and further boost the supply/demand imbalance. As for NAND, demand for NAND is already outpacing supply and that situation is expected to get worse over the next several quarters.

 The Technical Outlook: The Semiconductors Are On The Verge Of A Major Breakout

The daily chart of the iShares PHLX Semiconductor Index (NASDAQ:SOXX) is quite bullish. The ETF made a strong VEE-Bottom recovery, has corrected and consolidated, and now looks ready to move higher. The price action is tickling the all-time high as I write this and the indicators are bullish so a move higher is the most likely scenario but there is a risk. The all-time high could trigger selling/profit-taking and that may keep price action in check.

The weekly chart is equally bullish if not more so. The ETF is in a clear uptrend, has pulled back to and bounced from support, and the whole thing is confirmed by bullish trend-following signals in both indicators. On this chart, the new all-time high appears even more likely and there is ample room in the indicators for a run higher. Using simple technical projections and assuming the new all-time high is set, the next targets for this ETF are the $340, $380, and $420 levels.