Semiconductor shares have been underperforming the broader markets since an early August swoon caused investors to focus on a rotation into defensive and cyclical areas of the market. The charts indicate it may be time to look at chip stocks once again. The news flow is chalk full of scary factors including volatile seasonal comparisons, an uncertain path of Federal Reserve rate cuts, geopolitical conflicts, and a potentially tumultuous election. However, the major semi names like Nvidia (NVDA) , Broadcom (AVGO) and AMD (AMD) have not actually fallen significantly in this rotation. The charts of these names show simple sideways consolidation patterns of lower-highs and higher-lows. These consolidation patterns are now showing signs of completion as resistance levels are being broken. Investors are being quickly reminded that we’re still in the early stages of a technological boom in artificial intelligence and they may need to pay attention. Nvidia has been covered heavily here on CNBC Pro and is a major holding in my portfolios, and is currently breaking above the $131.70 level. However, I want to focus on another key semiconductor name, Broadcom. Before we get into the specifics of Broadcom, let’s take a look at the rotation out of semis starting in early August. I’ve labeled NVDA for clarity. Starting on August 9th you’ll notice the arrows of the various semis I’ve included here are pointing to the left, indicating a loss of relative momentum and relative strength to the benchmark S & P 500. Starting around Sept 27 you’ll see the semiconductors begin to rotate higher and in some cases turn back to the right regaining relative strength and momentum compared to the S & P 500. You can see the group moving in unison and the message is pretty clear. The semis are setting up the possibility of leading the broader market higher once again, despite an uncertain election, geopolitics, Fed rate policy. The market might be focused on another driver in here, the start of Q3 earnings season. Broadcom’s chart Broadcom is a key holding in both my dividend and growth portfolios at Inside Edge Capital. (5% and 3% allocations respectively). Broadcom does in fact pay a 1.20% dividend. Second-quarter earnings were robust showing EPS growth of 18% and sales growth of 47%, both beating expectations. Technically speaking, AVGO weekly chart is testing a key ‘measured move’ level of 335% from the prior advance from the Covid lows to 2022. An equal leg 335% move from the depth of the 2022 lows projects current levels of $180.70. You can’t make this stuff up. It’s unbelievable how often this ‘measured move’ phenomenon occurs. Moving down to the daily chart we see that the blue dotted resistance trendline is being attacked at the $180.70 measured move level. This zone of resistance looks ripe to fall, bringing AVGO to and likely through the all-time highs of $185.16 and into the $200s. If you’ve turned your back on the semis it might be time to once again pay attention. The AI boom is alive and well and transcends the macro factors impacting us in the short-term. -Todd Gordon, Founder of Inside Edge Capital , LLC DISCLOSURES: (Gordon owns AVGO in his wealth management company Inside Edge Capital. Charts shown are MotiveWave and Optuma.) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
