Nvidia Touched $4 Trillion. This Chip Stock Looks Interesting, Too: Technical Take

Allegro MicroSystems has had a strong run, but could keep going. (Courtesy Allegro MicroSystems, Inc.)

A trend, once in motion, is more likely to stay that way than reverse course. This thought could be applied to the semiconductor space, which has already been on a good run. Those who think the group is extended could take a look at the weekly chart of the VanEck Semiconductor exchange-traded fund, which has come a long way but just recently broke above a double bottom pivot near $270 in a pattern exactly one year long.

Nvidia, which touched a $4 trillion market cap Wednesday, is the undisputed sector winner, and is doing its part by pulling others along for the ride. Investors bullish on the sector want to see many of the stocks participating. This is the definition of healthy action.

Looking down the food chain, Allegro MicroSystems is now trading near a two-year high after sprinting off its early April lows. The stock has doubled in the last three months, but taking a peek at the longer term weekly time frame suggests this advance could continue. The stock has gained in eight of the last 11 weeks, and, more important, has closed near the top of the weekly range every time, showing strong institutional interest. Bulls would love to see some digestion here, and a logical entry area could be in the $34-$35 area.

Keep in mind that all-time highs aren’t a bearish development, and some consolidation here makes a lot of sense. But don’t be surprised to see this group end the year higher than it is now.

Write to Doug Busch at douglas.busch@barrons.com.