Recent strength in the stock market has benefited no sector as much as it has technology sector. And within the technology sector, semiconductor stocks in general have been particularly beloved by investors.
The Direxion Technology Bull 3x Shares (TYH), for example, sold off on Friday after a three-day rally. By contrast, the ^USD^ is up four in a row, finishing at new short term closing highs and increasingly overbought.
When profit-taking comes to these stocks, traders are going to want to know where the selling, however short-term, is likely to be strongest. Based on recent price action and our research into short term stock market behavior, here are three of the semiconductor stocks that are increasingly too hot to handle right now and are likely to available at lower prices in the short term.
Among our lowest rated semiconductor stocks in the short term, Fairchild Semiconductor (FCS) was downgraded on Thursday after closing higher for a third day in a row. After a similar short-term rally in mid-September, shares of FCS sold off for four out of the following five days.
Rallying to new short term highs on Friday, shares of NVIDIA Corporation (NVDA) have gained more than 13% over the past week. Traders should not be surprised if gains like these encourage profit-taking in the near term. Like FCS, NVDA has closed higher for four days in a row, most recently in technically overbought territory.
The trading in Analog Devices Inc. (ADI) since August has been a model of short term rallies and short term sell-offs. Again at short term highs and earning our initial downgrade to a “consider avoiding” 3 out of 10, ADI is another semiconductor stock that has made good short term gains for traders – traders who will be increasingly likely to want to lock in profits as stocks like these move higher.
David Penn is Editor in Chief of TradingMarkets.com