Along with Monday night’s earnings release from aluminum behemoth Alcoa (NYSE: AA), chipmaker Novellus Systems (NASDAQ: NVLS) also reported its Q2 numbers providing investors a glimpse into the health of the semiconductor space. Unfortunately the report did little to bolster investor confidence as the stock was down over 11% in Tuesday’s trading session.

On the back of Novellus’ weak report the entire semiconductor sector, represented by Merrill Lynch Semiconductors HOLDRS (AMEX: SMH), see chart below, was taken out to the woodshed. This type of earnings reaction helps illustrate an important point that investors would be wise to remember. Earnings announcements not only have large ramifications for the company reporting, they often cause large shifts in trader sentiment for entire industries or sectors. This is why traders should not only be aware of the earnings date of stocks they own but also the earnings date of peers in the same sector.

At times it may be appropriate to avoid entering new trades on a stock if its peer is set to report earnings in the coming days. Fellow semiconductor stock KLA-Tencor Corp. (NASDAQ: KLAC) recently came up on my radar as a strong stock to consider for bullish plays. By noticing NVLS reported earnings last night I avoided initiating any positions and opted instead to wait for any post-earnings disruptions that may have seized the sector.

A bad report from a single stock in the sector can upset the entire apple cart.

Source:  MachTrader

At the time of this writing Tyler Craig had no positions in NVLS or KLAC.

Follow Tyler Craig on Twitter@TylersTrading.