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Technology One-Two Software Semi Punch: TSM AMAT NUAN

ChartSmarter

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CMT, Chartered Market Technician

Apple Blooming:

Without much fanfare AAPL has become the most valuable company in the world once again, surpassing MSFT, although both are well ahead now of the trillion dollar market cap. Like BUD has the “king of beers” moniker, Apple must have that distinction within technology. As many have anticipated a pullback in AAPL, it has not materialized as it shows the classic definition of a strong bull market, not letting one in, as it seemingly marches endlessly higher. The stock has a profound effect on the markets as it represents nearly 8% of the Nasdaq, being its top component. For that reason it is often thought of as a proxy for not only the Nasdaq, both most other indexes as well. Since the Nasdaq bounced precisely off its upward sloping 200 day SMA on 10/3, it has jumped almost exactly 1000 handles top to bottom. That move will most likely have to be digested, and let the moving averages catch up to price, but the benchmark trades more than 400 handles ABOVE its 50 day SMA. Getting back to AAPL which has the biggest impact on the Nasdaq, it is sporting a bull flag, a continuation pattern higher with one of the most successful patterns. The bears may have to wait a bit longer.

Getting back to AAPL which has the biggest impact on the Nasdaq, it is sporting a bull flag, a continuation pattern higher with one of the most successful patterns. The bears may have to wait a bit longer.

Software Surging:

The software groups resurgence is well underway, and caught many investors by surprise as the move has been fairly parabolic (the market makes it a point to confound the most). This is the third consecutive week that the software, via the IGV has outperformed the SMH, and it is giving technology group a turbo boost with that one-two punch. Names in the space like PAYC ended a 14 session winning streak Friday, taking out a cup base pivot of 259.81 along the way. TTD has risen by 80 handles alone in the last 3 weeks, and SPLK after breaking above a bullish ascending triangle this month has gained a combined 25% the last 2 weeks alone. To get a broader look at the overall software sector, the IGV is on a current 6 week winning streak, with all CLOSING at the top of the weekly range, and this week finished above a 230.97 cup base pivot in a 4 month base. It is looking more likely that the semiconductor move, as strong as it has been was simply holding the baton for software as it rested. The ETF now seems poised for a nice year end run.

IGV overbought

Recent Examples:

The electronics components and equipment group is often overlooked in favor of semiconductors, software, and computer services. But there have been some solid performers within the electronics group like ATKR JBL and KEM to mention a few examples. Below is the chart of ARW, and how it appeared in our 11/19 Technology Note. This stock has been lower 12 of the last 17 sessions, but one can paint a bullish picture as bears have been unable to do any considerable damage with the name down 8% from most recent 52 week highs. On its WEEKLY chart one would be able to see a nice add on cup with handle pivot of 83.63 in a base more than 7 months in duration. This name has a footprint in the semiconductor space and that is certainly providing a tail wind for the stock. Sometimes slow and steady wins the race, and this may be what ARW is doing. Respect the action.

The chart of ARW: how it appeared in our 11/19 Technology Note. This stock has been lower 12 of the last 17 sessions, but one can paint a bullish picture as bears have been unable to do any considerable damage with the name down 8% from most recent 52 week highs.

Special Situations:

  • Taiwan semiconductor play higher by 44% YTD and 40% over last one year period. Dividend yield of 3%.
  • Up 11 of last 14 weeks (2 of 3 declining weeks fell less than 1%), and last 4 all CLOSED very taut within just .50 of each other.
  • Last earnings reactions fell fractionally by .8%, stopping three straight advances 3.7, 2.3 and 1.8% on 7/18, 4/18 and 1/17.
  • Buy stop above bull flag pattern. Breakout carries measured move to 64.
  • Entry TSM 54.  Stop 52.25.
Taiwan semiconductor play higher by 44% YTD and 40% over last one year period. Dividend yield of 3%.
  • Semi equipment play higher by 77% YTD and 58% over last one year period. Dividend yield of 1.4%.
  • Concern for long double top near 63 level with March ’18 period. Week ending 11/15 rose 10.8%, and following week LOST 9.9%. Three weeks ending between 10/25-11/8 CLOSED very taut within .47 of each other.
  • Earnings on a one up one down scenario last 5 instances up 8.9, 2.5 and 1.1% on 11/15, 5/17 and 11/16/18, and lower 1.1 and 3.9% on 8/16 and 2/15.
  • Enter after gap fill from most recent earnings reaction.
  • AMAT: Buy here at 56.80.  Stop 54.
AMAT Bullish
  • Software name higher by 36% YTD and 11% over last one year period.
  • Higher 12 of last 16 weeks, and also put up powerful run gaining 17 of 20 weeks ending between 12/28/18-5/9.
  • FOUR consecutive positive earnings reactions up by 5.5, 9.3, 8.2 and 3.1% on 11/21, 8/8, 5/9 and 2/8.
  • Enter here after break above cup base pattern in base that began in May ’17.
  • NUAN: Buy here at 17.60.  Stop 16.25.
NUAN break above monthly cup base pivot of 17.34

Entry Summaries

TSM: Buy stop above 54.  Stop 52.25.

AMAT: Buy here at 56.80.  Stop 54.

NUAN: Buy here at 17.60.  Stop 16.25.

Good luck.

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