For all the celebrations in blue chip technology land – from the big move in Microsoft (NASDAQ: MSFT), up more than four and a half percent, to the resilience and apparently endless supply of new, 52-week highs in Apple (NASDAQ: AAPL) – though the stock is now down eight out of nine and nearing oversold territory), it may be hard to hear the lamentations in the semiconductor sector.
Here, not only are leading semiconductor stocks like SanDisk (NASDAQ: SNDK) and Altera Corp (NASDAQ: ALTR) plunging by more than 11% and 8%, respectively, they are also dropping back into bear market territory, where traders going forward will be increasingly less likely to respond to future oversold conditions with aggressive buying.
But rather than focus on those semiconductor stocks becoming bathyspheres beneath the 200-day moving average, let’s keep an eye on those oversold stocks from the group that are trading well within bull market territory, and may simply be being dragged lower by the rest.
Here a stock like Novellus Systems (NASDAQ: NVLS) may be worth watching. At 52-week highs in late March, shares of NVLS have closed lower for three days in a row – five out of the past six – after pulling back by two and a half percent on Friday. In addition to retreating to new, two-week lows, shares of NVLS are trading at their lowest level since early March.
Oversold ahead of trading on Monday, NVLS has a positive edge of more than one and a half percent, and has earned a one-point ratings upgrade to 7 out of 10 midway through Friday’s session. This puts Novellus Systems a point below our “consider buying” category, and a potential target for traders looking for weakness above the 200-day moving average.
Other names in this category of “down but not out” among semiconductor stocks are Kla-Tencor (NASDAQ: KLAC), down two in a row after pulling back by more than 1% in Friday’s trading, and Xlinx Inc. (NASDAQ: XLNX). Shares of XLNX have closed lower for three days in a row to finish newly oversold, and have a short-term, positive edge of nearly three-quarters of a percent.
Traders and active investors looking to avoid single stock risk can consider the Market Vectors Semiconductor ETF (NYSE: SMH), as one of a number of non-leveraged, exchange-traded fund alternatives to trading individual stocks. SMH sold off by more than one and a half percent on Friday, closing lower for a third day in a row, and finishing in technically oversold territory for a second consecutive session. The ETF was trading oversold as recently as the beginning of the month, when new, short-term lows and three out of four lower closes set the stage for a short-term rally of more than three and a half percent over the next five days.
Click here to read the first chapter from the updated 2nd Edition of How Markets Really Work by Larry Connors and Cesar Alvarez.
David Penn is Editor in Chief of TradingMarkets.com