This Sluggish Sector Is Ready to Rally

The semiconductor sector hasn’t rallied as quick as the Dow Jones Industrial Average, the S&P 500 or the tech-oriented Nasdaq 100. It simply hasn’t followed the broader markets step for step.

You’ve heard “a rising tide lifts all boats.”

It was made famous by a speech from President John F. Kennedy in 1963.

Now, when it’s referenced, it’s used to describe a policy that will benefit the economy in general, not just a few groups.

Many view tax reform as having the same benefit. That it is a rising tide that will lift all boats, at least for the corporations that saw the big tax cuts.

And that has helped send the stock market, in general, rallying for the past two months as investors truly believe “a rising tide lifts all boats.”

But one sector of the market is getting left behind for a couple of reasons.

With one of the hottest sectors in recent years failing to keep pace with the broader markets, it gives us a significant buying opportunity — here’s why.

The Semiconductor Sector Is Falling Behind the Broad Market

See, the semiconductor sector hasn’t rallied as quick as the Dow Jones Industrial Average, the S&P 500 or the tech-oriented Nasdaq 100. It simply hasn’t followed the broader markets step for step.

If you look back to the last year and a half, you’ll notice the sector has been on a strong rally. But just before the end of the year, it experienced nearly a 10% pullback.

The semiconductor sector hasn’t rallied as quick as the Dow Jones Industrial Average, the S&P 500 or the tech-oriented Nasdaq 100. It simply hasn’t followed the broader markets step for step.

Since then, the semiconductor sector has failed to surge enough to hit a new high, while broad indexes like the Dow are hitting new highs and setting records for the pace of the rally.

There are a few things that contributed to the semiconductor sector being a little sluggish.

For one, the tax reform I mentioned, which acts like “a rising tide that lifts all boats,” won’t benefit tech companies as much as other industries. That’s because they have been working to lower their tax bills and thanks to the tech industry, have been able to do so more than other companies.

Ultimately, not many will see an increase in their bill, so it isn’t a negative for the industry.

But the industry also experienced one of the biggest computer chip flaws ever — and it impacted several companies. This has weighed on the sector along with a smaller benefit from tax reform, even though only a few companies were directly impacted by the flaw.

And that’s what gives us a buying opportunity.

Since the sector has already went through a bit of a correction since last year, and it hasn’t quite hit a new high yet, you can ride it as it climbs to new highs, and benefit when the breakout comes.

Let me explain…

A Massive Growth Sector

Yes, you can buy the stocks that were directly impacted by the chip flaw and simply wait for the rally.

That’s because the flaws present a short-term hiccup in an industry that is in the early phases of a massive growth market.

Have you heard of the Internet of Things (IOT)? It’s where everything from your washer and dryer to your coffee pot will be smarter than the computer you are using today. That means everything will be connected to Wi-Fi and loaded with chips and sensors.

The IOT market is still in its early stages, as adoption in mass markets is just beginning — and one flawed chip isn’t going to disrupt that.

If you are in any of my services, then you likely already have exposure to a few of these semiconductor stocks — and that’s great.

If you want broad exposure, you can buy the VanEck Vectors Semiconductor ETF (NYSE: SMH). It tracks 25 of the largest semiconductor stocks to give you a broad benefit from the sector.

The fact this sector is missing out on the tax reform rally means it can play catch-up during 2018, as tech stocks will still reap the benefits of tax reform — either through lower tax rates, or increased spending by other companies.

And the IOT will boost prices for years to come … and now is your chance to jump in.


Chad Shoop, CMT

Editor, Automatic Profits Alert



The bigger factor in a sluggish semiconductor business is that Moore’s Law has failed. Grady Moore proposed in the late 1970’s that computer processing power would double every 18 months, due to efforts to make the individual transistors on a microchip smaller. Reducing their physical size shortened the self-resonant wavelength, enabling the chips to run faster and perform more operations per second. Meanwhile, making each transistor smaller enabled more transistors to fit on the same square inch of silicon, which enabled whole computers to fit on single circuit boards.

What wrecked Moore’s Law is that transistor size finally got small enough to where single atoms of impurities could ruin an entire microchip. Once we reached that point, further increases in chip power slowed drastically. By about 2005, the industry reached a point, where it became more important to improve software and take full advantage of existing chip capabilities. This is what drove the rise of private-equity venture capital in Silicon Valley. Tiny startups borrowed immense amounts of money from VC firms to do short-term experiments, lasting a few months, into ways of applying software for commercial purposes. Semiconductor makers became disintermediated. The computer itself, occupying a single circuit board in an enormous rack of server equipment, became a commodity rented out by Amazon and Google to small startup companies that ran software in these server “clouds”. Because the “cloud” is doing much of the actual work, few people perceive a need to buy new computing hardware. Consumers make do with older computers, and now with older cell phones, relying on rapid data communications over cable modems to access applications that run in the “cloud”. And investors who once made fortunes in semiconductor companies, are speculating those fortunes investing in the new software firms, by becoming Sand Hill Road VC’s.

A practical example can be seen in self-driving autos. As recently as 1990 it was thought that self-driving autos would need to be surrounded with microchip-embedded traffic signs and traffic signal lights. Today’s self-driving car experiments use video cameras and software to interpret the pictures the cameras take…and use fast cellphone connections to allow teams of human operators to intervene, when the software is confused about what the car sees in it’s path.

It’s the fact that software design now controls profits in the data industry, that’s squeezing margins at semiconductor makers. Until there’s again a good reason to buy the newest semiconductors in large numbers, growth will remain slow.

Im keeping all my Iota,,and will be seeing all of you on the other side when things kickoff again. Maybe I’ll hang on to some of my Ripple too.. Ive been wrong before,, but i have to follow my instinct on this one. It may not ever get as high as Bitcoin, but what happened to it,, had to happen to start the ceiling.

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