In January of 2013 NFTRH used the Semiconductor sector as a ‘canary in a coal mine’ to a potential coming phase of US manufacturing strength and an economic bounce. This had negative implications for gold but normally would have had positive implications for commodities positively correlated to the economy.
That did not materialize in 2013 (as China decelerated) although with the recent launch of various ‘outlier’ commodity sectors like agriculture, natural gas and uranium along with persistent strength in crude oil and the highly speculative TSX Venture Exchange (CDNX), we now consider the view that some inflationary chickens (rising cost effects) may be coming home to roost. The economic bounce was after all instigated by an inflationary mix of ZIRP on the Fed Funds rate and long-term Treasury bond buying.
We are managing precious metals and commodities on an ongoing basis, but today I want to focus back where it all began, with the canaries in the coal mine. Our early alert came in the form of personal information received about a ramp up in Semiconductor fab equipment orders from a friend in the field. If fab equipment companies like Applied Materials and Lam Research were ramping up then it meant that the Semiconductor companies themselves were gearing a new build cycle. This was ‘early warning’ stuff.
But now the Semiconductor index itself, which has led the rally since Q4, 2012 (and is still leading despite some other leadership indicators like the BKX-SPX ratio falling off lately) is at a very important big picture pivot point. Here is SOX-SPX, showing leadership during the most intense phase of the cyclical bull market…
Dialing out to a monthly view of the nominal SOX index we find the really compelling picture. The Semiconductors are technically above 10 year old resistance! ↠You know I don’t use (!) very often in my analysis. A March close above 560.68 is needed to confirm this breakout.
