The Chip Stock That Refuses To Crack

The semiconductor trade has been the engine of this bull market, and this week, the group is about to face another major test.

SK Hynix is preparing a massive Nasdaq ADR listing under the ticker $SKHY, giving U.S. investors direct access to one of the world's most important memory chip companies. 

The offering is expected to be one of the largest foreign listings ever in the U.S., and it comes as investors continue to chase exposure to AI, high-bandwidth memory, and the next leg of the semiconductor cycle.

And while everyone is talking about SK Hynix, the semiconductor group itself is starting to look tired.

Look at the equal-weight semiconductor ETF $XSD.

This has been the leader since the late-March low, more than doubling in just a few months. 

But momentum has not confirmed the latest highs...

While price has been making higher highs, the 14-day RSI has been making lower highs. 

That's a textbook bearish momentum divergence, and now XSD is sitting right on top of the VWAP anchored to the low from earlier this year.

This is the line in the sand.

So long as buyers defend that level, the path of least resistance is sideways in the context of a very strong primary uptrend.

But if XSD breaks below it, we could see a quick move lower across the group.

We're already buying short-dated puts in some semiconductor stocks through Wave Trader. 

Wave Trader is one of our options products designed to capitalize on tactical moves over the coming days and weeks.

The Beat Report is different...

Here, we're looking for the best stocks in the strongest primary trends, and we define "best" by three factors: technicals, fundamentals, and earnings sentiment.

So if semiconductors are showing short-term weakness within a very strong primary uptrend, we don't want to flip bearish automatically.

We want to find the names that are still acting right.

And one name that stands out to us right now is ChipMOS Technologies $IMOS.

Start with the relative chart.

While XSD is flirting with a breakdown, IMOS is breaking out to new multi-year highs versus its peers.

In other words, this name is bucking the trend.

While many semiconductor stocks are stalling, IMOS is continuing to catch a bid. 

Then look at the absolute chart.

IMOS put the finishing touches on a massive basing pattern earlier this year and is now trading at new all-time highs.

That doesn't mean it goes straight up every day because nothing does.

But when a stock is making new all-time highs while its broader industry group is starting to show cracks, it's hard for us to ignore that.

Now let’s bring in the earnings scorecard.

ChipMOS has delivered triple-digit earnings growth in each of the past three quarters, while revenue growth has remained solidly positive. 

What's more, the management team is focusing on higher-growth, higher-margin opportunities in memory, smart devices, healthcare-related logic products, and AI-related applications.

As a result, earnings sentiment is extremely positive. 

In November, IMOS rallied 16.6% after earnings.

And in February, it rallied 14%.

Over the past year, we've seen a clear shift from negative pre- and post-earnings drift to positive drift.

That tells us the market is consistently accumulating this name for its earnings reports. 

And that's the change in character we want to see.

So here is the bottom line...

Semiconductors are still in a powerful primary uptrend. 

Still, the group is starting to show signs of fatigue just as SK Hynix prepares for one of the biggest listings in U.S. market history.

So we want to be more selective.

And right now, ChipMOS is one of the semiconductor stocks that still checks all three boxes.

The stock has extremely strong technicals, fundamentals, and earnings sentiment. 

That is the Holy Trinity of Trading.

And that's why IMOS is on our radar.

If we decide to put on a trade, Beat Report members will be the first to know.

Join the Beat Report today to get our next trade alert, our current watchlist, and access to the stocks we believe have the strongest alignment across technicals, fundamentals, and earnings sentiment.

Happy fishing,

-The Beat Team