Software and e-commerce have mostly led the rally in technology and the Nasdaq. But now chips are trying to participate as earnings season approaches.
The Philadelphia Semiconductor Index broke out to new highs on Monday and has held its ground since. That may draw buyers who wanted more of a pullback but never got it.
This chart also features our Smart Relative Strength script, comparing SOX to the SPDR Technology ETF. It shows SOX has started outperforming the broader tech sector for the first time in about a month. Its breakout above 2,000 can now potentially serve as risk-management line for momentum followers.
The fundamental backdrop may support this rotation because chips stand to benefit from BOTH secular tailwinds and a cyclical recovery. Secular tailwinds include the ongoing shift to cloud computing, artificial intelligence and 5G networking. The cyclical recovery would come from global economies reopening from coronavirus. This creates a potential win-win setup for chips.
On the flip side, other recent movers like Zoom Video Communications and Netflix may become a source of funds if the macro environment improves.
The news flow has also been positive for SOX. Micron Technologies reported strong earnings last week and CEO Sanjay Mehrotra spoke of “healthy demand” in the second half of the year. Samsung beat estimates on Tuesday.
More results are coming soon. Chip-equipment giant ASML (#4 holding in SOX) reports on July 15, followed the next day by Taiwan Semiconductor. These aren’t as actively traded in the U.S. as names like Nvidia and Advanced Micro Devices, but they’re still important in the global industry. Intel’s due the following week.