Semiconductor swing
- Little-know chip support stock bucked Thursday’s weakness
- Shares have diverged from chip sector in recent years
- Price history suggest potential for near-term mean reversion
In one of the ironies of Thursday’s trading session, one chip stock surrendered a solid intraday rally to close lower on the day, while another gapped higher and closed up more than 10%. Both moves followed earnings beats.
While the first stock was the subject of bell-to-bell media coverage, the second one went virtually unnoticed.
The first stock, of course, was NVIDIA (NVDA). The second one was Kulicke and Soffa Industries (KLIC)—which, to be fair to NVIDIA, is a semiconductor “support” (equipment and materials) company that doesn’t actually design or manufacture processors. Although KLIC managed to hold on to its gains as NVDA’s reversal weighed on the market, it still gave back a major portion of its intraday gain, which at one point topped 17%:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
In the near term, many traders are likely debating which part of Thursday’s move may have been the more significant signal—KLIC’s sell-off defying closing gain, or its intraday pullback?
Although it’s not part of the PHLX Semiconductor Index (SOX), KLIC long followed the general contours of the SOX trend, although it usually underperformed the chip index. In late 2023, however, KLIC diverged notably, continuing to trade lower over most of the next two years even though the SOX surged to the upside:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest directly in an index.)
One possible takeaway from this chart is that a rising chip tide hasn’t always lifted KLIC’s boat. Also, the stock’s history after similar moves is mixed. For example, after the 84 other times KLIC rallied at least 10% in a day (since 2020), the stock:
1. closed lower the next day 58% of the time.
2. posted a five-day net gain 51% of the time.
3. posted a 10-day net loss 52% of the time.
KLIC’s performance in situations that more closely mirror the current one was more bearish. When the 10%-or-larger up day came three days or less after the stock fell to its lowest low in at least a month, the stock:
1. closed lower the next day 82% of the time.
2. posted a five-day net loss 64% of the time.
3. posted a 10-day net loss 68% of the time.
Thursday wasn’t the final word on KLIC, NVDA, or the SOX trend. Tech enthusiasm could return on a moment’s notice. But that doesn’t mean every stock will be along for ride.
Today’s numbers include (all times ET): PMI Composite flash (9:45 a.m.), consumer sentiment (10 a.m.), preliminary wholesale inventories (10 a.m.).
Today’s earnings include: Buckle (BKE).
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