Semiconductor stocks, some of the worst off assets in the recent selling, have staged a strong comeback, with sector-related exchange traded funds now testing their short-term trend lines.
Rich Ross, managing director and head of technical analysis at Evercore ISI, argues that semiconductors tend to trade in tandem with the S&P 500 and act as a proxy for the health of the overall economy, reports Amanda Diaz for CNBC.
“They are the lifeblood of a world increasingly driven by technology,” Ross said on CNBC. “Metaphorically speaking, when the semis sneeze, the market catches a cold and vice versa.”
The semiconductor sector has made a strong rebound over the past few weeks. The iShares PHLX Semiconductor ETF (NasdaqGM: SOXX), which tracks the PHLX SOX Semiconductor Sector Index, gained 11.9% since the August 25 low. Similarly, the Market Vectors Semiconductor ETF (NYSEArca: SMH) rose 12.3%, SPDR S&P Semiconductor ETF (NYSEArca: XSD) increased 10.1% and PowerShares Dynamic Semiconductors Portfolio (NYSEArca: PSI) advanced 8.6%. The semiconductor ETFs have been coming up against their 50-day simple moving averages.
The PHLX Semiconductor Index was “beaten up more than any group in the recent correction,” Ross added. “But more importantly, it’s rallied 14% from the low outperforming the S&P 500 during the period. That relative strength off the low is a nice indicator of future success.”
The PHLX Semiconductor Index was slightly up 0.1% Wednesday, hovering around 625.5. Given the recent momentum, Ross is optimistic about the sector’s outlook.