First some fundamental insights. This from Palm Beach Trader editor Jason Bodner, via Casey Research…
“The sector has shot up nearly 30% in this year’s first quarter – its best start ever. And the overall market has followed. But if you think you’ve missed the boat on semiconductors, think again. Jason says his system is continuing to signal institutional buying in the sector (semiconductors). And that means more gains ahead for investors in these companies…”
We can see how the sector has performed on the following 16-month chart for the Semiconductor index, and the important point to observe on this chart is that, although the sector is now overbought, it has not long broken out to clear new highs by busting through a band of heavy resistance in the vicinity of multiple tops last year. This makes it unlikely that it will react back much, if at all – more likely is that it continues to ascend, pausing to consolidate from time to time. This should therefore provide a bullish background for the stock in the sector that is the focus of our interest, Lattice Semiconductor.
So now let’s review the latest 6-month chart for Lattice to see how it is getting on. A big concern for many investors or would be investors in this stock is that it may be forming a Double Top with its March highs – this is what caused some traders to freak out when it plunged below its 50-day moving average during the morning on Wednesday, requiring a change of underwear, but by the close it had recouped most of the losses, and the day’s action left behind a large bullish hammer candlestick on the chart. However, there are strong reasons for believing that instead of forming a Double Top it is marking out a very bullish “Running Flag” consolidation. One is that a high volume gap breakout of the kind we saw in the middle of February to new multi-year highs normally marks the start of a vigorous bullmarket that takes the stock much higher. Another is that while the stock has basically tracked sideways since its March peak, its Accumulation line has advanced to new highs, and the strength of this indicator at the time of Wednesday’s intraday plunge is a telling indication of internal strength. What therefore appears to have unfolded from the March peak is an Elliott 3-wave A-B-C correction that Wednesday’s intraday plunge served to complete. If this is the case the stock should advance from here and a breakout to new highs now is likely to lead to a powerful advance.
Another interesting slant on the behavior of this stock in the recent past is that it appears to have coiled inwards to a point within a spiral that conforms with the “Golden Ratio” as shown on another 6-month chart below, and since it is unlikely to disappear into a black hole, we can expect the temporary state of equilibrium that now exists to catapult it strongly higher, for the other reasons that we have described above.
While we can never be 100% sure of anything in this game, the fundamental and technical factors that we have briefly reviewed here suggest a high probability that Lattice is going to break into another powerful upleg imminently that will result in substantial percentage gains for anyone buying here and big gains in the options that we bought earlier.
In the initial article on Lattice we went for the June $15 Calls which are at about the same price as where we bought them ($0.45 bid - $0.75 ask).
How high might the expected next upleg in Lattice take it? It is thought likely that it will be at least equal to the February upleg, which means it should ascend to the $17.50 - $18.00 area minimum, with a high chance of a big overshoot.
FULL DISCLOSURE: I HAVE MAY $17.50 CALL OPTIONS IN THIS STOCK. The reason for recommending the June $15s for subscribers is that they are less risky. I am prepared to assume the much higher risk of failure inherent in the May $17.50s because I want the leverage. Curiously the spreads just widened dramatically on these options with a very high ask, which means that the market makers may be seeing "something coming down the pipe", although this is just speculation at this point.
Lattice Semiconductor website
Lattice Semiconductor Corp, LSCC on NASDAQ GM, closed at $12.66 on 18th April 19.
Posted at 8.40 pm EDT on 21st April 19.