Semiconductor ETF Tops Broad Rally, Confirms Uptrend

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Semiconductor stocks may be on the brink of a major turnaround after lagging the stock market the past year.

The largest ETF tracking chipmakers topped the stock market leaders list Thursday and confirmed a fresh new uptrend as it broke out of a bullish chart pattern.

Market Vectors Semiconductor ETF ( SMH ) vaulted 4.01% to 33.73 in healthy trade. The 0.79% gain in SPDR S&P 500 ( SPY ) and 0.60% lift inPowerShares QQQ ( QQQ ), tracking the 100 largest nonfinancial stocks on the Nasdaq, paled in comparison.

SMH has formed a cup-with-handle pattern with a 33.74 buy point. It's trading above both the 50- and 200-day moving averages, indicating a strong uptrend.

But it has a rather weak IBD Relative Strength Rating of 41, which means it's lagging 59% of the market. It carries a middle of the road Accumulation-Distribution Rating of C-, on an A-to-E scale, showing that institutional buying and selling are even.

It underperformed the market the past year, gaining 4.35% vs. 16.51% for the SPY. But it has outpaced the SPY in the short term, rising 4.22% in the past month vs. 3.24% for SPY.

SMH holds 25 chipmakers, includingIntel ( INTC ), weighted 19% of assets,Taiwan Semiconductor ( TSM ) 15% and Texas Instruments (TXN) 7%.

North America-based manufacturers of semiconductor equipment posted a book-to-bill ratio of 0.79, according to the November Book-to-Bill Report released in December by SEMI, the global industry association for chip and electronics.

A book-to-bill of 0.79 means that $79 worth of orders were received for every $100 of product billed for the month. This is rather bearish as a book-to-bill ratio higher than 1.00 means that recent new orders are outpacing current shipments.

The book-to-bill ratio has hovered below 1.00 since June. The recent rally could mean the market sees higher demand ahead and has already priced in pessimism.

Andrew Hill, president of Andrew Hill Investment Advisors in Naples, Fla., with $35 million in assets under management, explained why SMH was his best ETF investing idea for 2013 in IBD's December feature, "2013 ETF Strategies: 5 Laggards Due To Rebound."

Follow Trang Ho on Twitter @TrangHoETFs .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: INTC , QQQ , SMH , SPY , TSM

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