Improving Technicals And A Strong Seasonal Pattern

I love to find stocks that begin to provide corroborating bullish signals.

The semiconductor industry ($DJUSSC) has begun to show relative strength right on cue. Over the past decade, the DJUSSC has outperformed the benchmark S&P 500 by more than 6 percentage points during the November through March time frame. From April through October, however, this aggressive technology group has outperformed by less than 3 percentage points. Historically, we've entered the sweet spot for semiconductors. That's good news for Monolithic Power Systems, Inc. (MPWR), which had struggled badly from August through October:

Enter Monolithic Power Systems, Inc. (MPWR):

MPWR's AD line is showing solid action and the DJUSSC is trending higher on both an absolute and relative basis. That would provide me much more confidence trading MPWR if it were able to confirm a breakout above neckline resistance in its bottoming reverse head & shoulders pattern. We saw an open above neckline resistance on Tuesday, but it didn't hold into the close. The next intraday breakout will likely end much differently. Ultimately, the measurement (from the neckline down to the bottom of the head) of this pattern is 110 points. If you add that to the neckline at 410, you get a target of 520, which would approach the August high. I want to see that breakout first, though, before growing more bullish.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.