In recent days the Semiconductor HOLDRs ETF (NYSE: SMH) has exhibited notable weakness. Options trading investors may have noted that virtually every other sector has reclaimed the 50-day moving average with some surging to new multi-year highs but semiconductor stocks haven’t been able to get out of their own way. After five consecutive failed attempts to break above the 50-day moving average the SMH finally gave it up and dropped for three out of the last four days despite a relatively strong tape.

With Monday’s announced acquisition of National Semiconductor (NYSE: NSM) by Texas Instruments (NYSE: TXN), this sluggish sector received a much needed shot in the arm. Many semi stocks gapped higher in yesterday’s trading session. Will the knee jerk buying of other companies in the semi space be a one day wonder or will this sector come back in vogue and start participating more in the market rise? One tell I’ll be watching closely is how the SMH deals with the aforementioned 50-day MA which currently resides at the key $35 level. If the SMH can break above this resistance it has a pretty clean shot to $36.50.

Traders anticipating continued bullish action in the semi space may consider purchasing the SMH May 35-37 Call Spread. This vertical spread consists of buying the SMH May 35 Call option while selling the SMH May 37 Call option. I would use a break over $35 as the trigger for the trade. While Tuesdays attempt to breach this level failed, we may yet see a successful breakout in the coming days.

Semiconductor HOLDRS ETF (NYSE: SMH)

Follow Tyler Craig on Twitter@TylersTrading.