Posted January 13, 2023
By Ray Blanco
Biotech and Semiconductor Snapback Spells Good News
Last year’s battered tech and biotech stocks are finally starting to show real signs of life as the market marks its second green week in a row.
Semiconductors, broadly represented in the VanEck Semiconductor ETF (SMH) have started to rally this month, crossing over their 200-day moving average earlier this week.
As I type this, SMH has posted an 11% return so far in 2023.
Things are certainly off to a better start than last year, that’s for sure.
Then, while the PC market is expected to remain weak this year, the semiconductor move is buoying up a handful of the big semiconductor plays that were massively popular back during the quarantine days of the pandemic.
Chip fab equipment firms are in breakout mode too and are on the climb higher today as well.
Zooming out a bit, The SPDR S&P Biotech ETF (NYSE: XBI) is also in breakout mode, rising above a range the ETF has been stuck in since September.
Just take a look at the chart:
If you look at the latest green candle on the right, you can see that XBI has finally rallied above its nearly four-month range.
As biotech stocks find a new footing in the new year, I’m expecting great things from names in the space.
A Deeper Look at the Semiconductor Snapback
Even though semiconductors had a tough year in 2022, semis continue to be a sector that I remain bullish on for long-term success.
Year over year technology continues to advance and at the heart of all this advancement are semiconductors.
In recent years, there have been several exciting advancements in semiconductor technology.
For example, the roll-out of 5G networks has led to a huge increased demand for advanced semiconductors used in 5G-enabled devices and infrastructure.
The growth in Internet of Things (IoT) devices has also led to an increased demand for semiconductors, as these devices often require small, low-power chips to intelligently communicate with other household technologies.
And perhaps one of the most exciting applications exists in artificial intelligence (AI)
The increasing use of AI across virtually every industry, from self-driving cars to virtual assistants, has led to new developments and innovations in advanced semiconductors technology.
The semiconductors assisting in the development of AI systems are some of the most advanced chips currently being made since they have to handle the demanding workloads of AI algorithms.
And now, looking at the SMH chart, we can see that the ETF has started to build an uptrend following a bottom in October along with the rest of the market:
The next obstacle to clear for SMH would be the December 2022 peak where it failed to break out.
But with the broad market now steadily churning higher and the tech-heavy NASDAQ leading the charge, I’m looking for semiconductors to continue running in 2023.