Strong “Buy” Signals in the Semiconductors
The semiconductors had a very strong reversal day Thursday. Many individual stocks as well as the semiconductor indexes had the same patterns. A gap up bullish candle following doji’s and Inverted Hammers at the bottoms. Seeing both a good number of stocks and the indexes with the same signals reveal that there was buying across the board in that sector. That usually implies that the investor sentiment has changed about the whole industry, producing a more sustained rally potential. The fact that there was a gap up today in many of the semiconductor stocks showed that the investment funds wanted to get back into these stocks with enthusiasm. Using candlestick charts easily identifies where new activity is occurring
A lot of these stocks have been in a downtrend, some losing more than half their value in the past few months. When the indexes turn up and you witness “gap up” charts, that is the area of the market that you want to participate. Something occurred today that reversed the perspective in the semi’s.
Market Direction – The Nasdaq had a strong day closing right at the 50 day moving average. Stochastics, after declining for the past two weeks. While the stochastics were declining, the Nas trading moved in a relatively flat range, producing toppy signals but not really pulling back. Now the stochastics have curled back up, producing more potential for the Nas to break up through the 50 day MA.. Another strong day in the Nasdaq could make the new target the 200 day MA at around 1970.
At the same time the DOW had a weak trading day, but the low of the day came back and bounced exactly at the 50 day Ma which should now be acting as a support level.
The shorts that were in the oversold area and showing “buy” signals were covered today. The longs that have held up during the DOW’s uptrend and the Nas’ consolidation period are still acted well today. During consolidation periods, the signals or the lack of sell signals keep from being scared out of a position that is still in an uptrend but may not be showing great strength. The fact that a “sell” signal never appears is an indication that whatever sloppiness may be seen in the uptrend, it is just sloppiness and not a reversal.
The next few trading days will show what the sentiment will be while trying to breach and support the 50 day moving averages. As expressed in the morning comments, there are the sectors that are acting strong and those that are acting weak. Right now the semiconductors are showing strength, the REIT?s should be selling off.