Why Semiconductors matter

Looking for a longer time frame (EOD) trade, Gang? 

There’s an easier way to scan and not only is it easier; it’s more effective! My process of scanning really is a process of scanning the sectors and indices. 

Look at the bigger picture, the bigger pool of stocks.

The NASDAQ, QQQ, ES, S&P, RTY and often very overlooked… ETFs…   

The SMH is the VNX semiconductor index. When trading one stock, the risk is higher but by looking at ETFs, each stock comes together to lighten the load (risk).

Many traders overlook the opportunity to trade related stocks as a whole. SMH is a collection of stocks that represent semiconductor companies and gives traders an edge. How? The trade isn’t dependent on individual stocks.  

Why Do We Care About Semiconductors? 

We care about semiconductors because they are, many times, reflecting what’s happening in tech stocks. Tech stocks need the technology of semiconductors. Because of this, typically tech stocks and semiconductors will move in tandem. Occasionally semiconductors can actually lead the tech stocks, and the NASDAQ or the QQQ.  

So Why Is SMH My Pick? 

I think that the SMH is good for end of day longer term time frame trading because it’s working right now.

For the most part, since the recovery in the early part of this year, the NASDAQ has been the strongest stock collection. Semiconductors are going to benefit from that. Right now, semiconductors are running parallel with the NASDAQ. Being that the NASDAQ has been in a strong uptrend and semiconductors have begun to transition out of chop — we want to keep the bias bullish. 

SMH has been in chop since March and has begun trying to reorganize into an uptrend.

We focus on oversold buys at levels of support, because that’s what I’m willing to do in the NASDAQ. It’s very likely that’s what’s going to happen to semiconductors, specifically the SMH index. If this leading tendency is in play, SMH will bounce before the NASDAQ. 

The GRaB candles indicate that the bullish direction is being confirmed and price is close to breaking outside of the range.

What’s So Great About Trading The SMH ETF? 

Well, first of all, in a very generic general way, the great thing about trading any ETF is the ability to trade one thing. There’s one ETF that behaves like a stock, but in reality, it’s representing a lot of different stocks. ETFs trade in the same way as stocks except, you’re trading a collection of stocks that share a sector.  

Sector rotation is typically movement out of one sector and that flows into and benefits another.

Typically you’re going to see movement out of a very hot, rallying sector, normally at a top where people perceive it’s too expensive. It’s no longer viable for higher highs, and money will leave what they call a high beta momentum sector and move into the laggard. You’ll see money flow out of the hot stuff and move into the absolute coldest of the cold sectors.

A really good example of that right now would be movement out of tech and into energies and financials. Sector rotation is very momentum driven and worthy of constant attention to keep up with further opportunities.

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