Semiconductors Hold A Very Important Key

By all accounts, 2022 has been a very difficult year.

I was cautious/bearish heading into the year, but I've been expecting a strong Q4 to close out the year. While we are still higher since the end of September, the past few days' losses have given back most of the gains. There's a lot that goes into beginning a new uptrend, but one group that definitely deserves watching is semiconductors ($DJUSSC). On the chart below, you can see that the DJUSSC bounced in early October off of a critical trend support line:

Enter Semiconductors ($DJUSSC):

If the stock market weakens one more time to challenge 2022, which I don't believe it will, I'll be watching this trendline very closely. This is not a group we want to see breaking its long-term uptrend. In the relative strength panel ($DJUSSC:$SPX), it appears that semiconductors may be breaking out on a relative basis - at least out of its relative down channel. That would be a first step to repair. In the bottom panel, I show the strong positive correlation between the direction of semiconductors and the direction of the NASDAQ 100 vs. the S&P 500 (QQQ:SPY). We want the growth-oriented QQQ to lead as that's what happens when secular bull markets resume. Keep this chart on your radar.

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