Trading By the Numbers: Can the Semiconductors Survive Selling in Tech?
For much of trading on Wednesday, semiconductor stocks were still attracting at least some buyers while the broader market for technology stocks, including stocks like Apple (AAPL) – sold off significantly. But heading into the final hour of trading at midweek, the selling had spread to the semiconductors as well.
Closing lower for two out of the past three days of trading ahead of trading on Thursday is the Semiconductor HOLDRS ETF (SMH). The selling in SMH comes after the stock had finished in overbought territory for six consecutive trading days, and in some ways resembles the selling the exchange-traded fund experienced after its most recent short term rally to extreme levels in mid-September. Then, six days in a row in “consider avoiding” territory led to a short, sharp, two-day drop of more than 4%.
With the semiconductor sector moving back into sync with the broader technology market, broad-based technology ETFs like the Direxion Technology Bull 3x Shares ETF (TYH) are another way to keep track of what is going on with technology’s key stocks. Leveraged 3-to-1 to the Russell 1000 Technology Index, the fund also has rallied to levels from which it has historically tended to underperform. Recent examples of these short term reversals abound, with the TYH reversing in late August and again two weeks later in September after brief bounces.
Lastly, traders looking for to remain on the buyside of the technology or semiconductor market (rather than looking for ETFs to potentially sell short) may want to keep an eye on funds like the ProShares UltraShort Semiconductor ETF (SSG), especially if the fund continues to pullback to lower, potentially more attractive levels. Additional weakness in the ETF – which is leveraged 2-to-1 to the inverse of the Dow Jones U.S. SemiconductorSM Index – could be provide potential buyers with just enough value to encourage them to begin to wade back in to the market.
The stocks in today’s report were drawn from the data and research available through PowerRatings. To find out more, click here.
David Penn is Editor in Chief of TradingMarkets.com