Betting chip stocks will revisit bull market highs is the trade of the fourth quarter, says Evercore ISI

This year could very well end the way it started. Chip stocks could return to their bull market highs and beyond, and be the key trade of the fourth quarter, according to Evercore ISI. In fact, Rich Ross, head of technical analysis at the firm, expects there’s 20% more upside to semiconductor stocks as represented by the VanEck Semiconductor ETF (SMH) into year end. The ETF has already surged more than 40% this year, and notched a 3% gain this week, but it remains more than 13% off its recent high. Similarly, the iShares Semiconductor ETF (SOXX) climbed more than 18% this year, about in line with the S & P 500. However, it’s off by more than 14% from its July high. SOXX 1D mountain iShares Semiconductor ETF (SOXX) But the technical set-up is encouraging from here, Ross said. Now that semiconductor stocks have double bottomed above key support levels — a technical pattern that suggests new upside potential — the sector is clear to outperform, he said. “No sector offers [more] upside than Semis, which are still -20% from their all-time high, and have double bottomed atop key support (200ma),” Ross wrote on Tuesday. “The sum of which sets the stage for a Q4 surge to new highs as commodities and cyclicals [more] broadly surge in the absence of inflation and presence of rate cuts.” The technician noted buying opportunities include Broadcom , Taiwan Semiconductor Manufacturing , Micron Technology and, of course, Nvidia .