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 important 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:
The iShares PHLX Semiconductor ETF (NASDAQ:SOXX) was unchanged in premarket trading Monday. Year-to-date, SOXX has gained 11.10%, versus a 6.04% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Investing Haven.