The semiconductor sector is one of the few outperformers since last summer. The breakout that took place last September was visibly in the making for a longer period of time, as seen on the chart, so smart investors saw that coming. InvestingHaven readers were informed several months ago that this sector would continue to be bullish in the first period of 2017: 4 stock market sectors that could outperform in the first months of 2017. The SOX index, representing the semiconductor stock market sector, rose exactly 30 percent in the last 6 months.
Will this stock market sector continue to rise?
This is an imporant question, not only because it would suggest whether there is sufficient upside potential to consider a long position. The answer to that question, in our view, is simple: as long as the uptrend (which anyone can create by connecting the lows of the recent uptrend) is still intact, prices are set to rise. We would not encourage anyone to take aggressive positions in this stage.
The more important side of the issue, however, is that the semiconductor stock market sector could be a leading indicator for stock markets as a whole. A failure of the semiconductor sector to rise could have major implications for stock markets. The reason is that the semiconductor sector is an outperformer, hence a leader of the stock market. Typically, the stock market rises along with the outperformers. In other words, investors could watch the outperforming sectors as a leading indicator for the stock market as a whole.
This is a fundamental reason for investors to follow specific stock market sectors, even if they are not invested in it.
This small trick is complementary to what we wrote earlier about leading indicators, see: