foxex: Food to Silicon

Chart Advisor | Focus on the Price

Tuesday, October 29, 2019

1. Markets Rise as Investors Move from Restaurants to Semiconductors

2. Semiconductor Sector Strength Surges

3. Can Bitcoin Buyers Benefit from Watching Chip Makers?

Market Moves

While stocks again closed near their highs, a notable shift can be seen between sectors as investors appear to be positioning themselves for another upward run in stocks. The S&P 500 (SPX) and the Nasdaq 100 (NDX) both closed higher than any prices before yesterday despite pulling back from yesterday's highs. In the midst of prices hitting new highs and investors showing much less fear than just a few weeks ago, one chart tells a very interesting story.

The chart below features a comparison between semiconductor stocks and a portfolio of high-profile restaurant chains and suppliers. Nervous investors typically look for defensive stocks, such as restaurants, which are considered more recession proof. Because these stocks had been rising all year until the last two months, the chart shows that money has moved out of defensive stocks and into key technologies. This signals a particularly more bullish attitude among investors and could portend a continued upward trend.

Semiconductor Sector Strength Surges

Within the Nasdaq 100, several semiconductors stocks have moved rapidly higher over recent weeks including Intel (INTC), Advanced Micro Devices (AMD), Applied Materials (AMAT), Micron (MU) and Nvidia (NVDA). Technology stocks are on the rise and semiconductors, as a group, are among the leaders. Many of these stocks are making new 52-week highs as they jump to higher prices on positive earnings news. The occurrence of a surge among technology stocks is often associated with a new bullish market. While stocks may continue higher, a more potent question might be to consider the effect of the semiconductor sector on a different market, namely cryptocurrency.

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Can Bitcoin Buyers Benefit from Watching Chip Makers?

Shares of Advanced Micro Devices (AMD) have doubled so far in 2019 and appear to be showing the makings of a new surge towards higher prices. Some have speculated that the purchase of more computing power for the use of Bitcoin mining might be leading to increased sales by companies whose chips best help in that effort. The two companies most often named in such discussions are AMD and Nvidia. A quick comparison between AMD share prices and the price of bitcoin reveals that this discussion may have merit.

The chart below compares AMD shares and Bitcoin priced in U.S. dollars over the past thirteen months. It is notable that last year at this time as AMD stock began to fall drastically, it was only a precursor to Bitcoin's own fifty percent drop. But notice that by the time Bitcoin hit its nadir that AMD shares had already begun trending higher. Even the recent pullback in price and subsequent rise higher in Bitcoin was presaged by similar moves in AMD. The relationship may be worth exploring for the astute observer.

The Bottom Line

Stocks held themselves close to their new all-time highs. Semiconductor stocks have proved resurgent even as restaurant stocks are beginning to sag. Among semiconductor stocks, AMD distinguishes itself with top performance. This may have something to do with Bitcoin's recent return above $10,000 in price. A comparison between AMD and Bitcoin looks like a promising area for study.