Trade of the Day: The Semiconductor ETF (SMH) Is Set Up for a Trade

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smh etf - Trade of the Day: The Semiconductor ETF (SMH) Is Set Up for a Trade

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Stocks, broadly speaking, bounced on Thursday, at least in part helped by the technology sector. One important part of this sector that I always keep a close eye on is the semiconductor group of stocks as represented by the VanEck Semiconductor ETF (NYSEARCA:SMH). After a 16% drop since early March, the SMH ETF has now arrived at a critical technical  juncture where a tradeable bounce could set up.

Before looking at today’s trade of the day, allow me to once again make clear the importance of a) looking at stocks in multiple time frames and b) respecting the time frame identified for any given trade … i.e. not turning trades into investments and vice versa.

SMH ETF Charts


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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

To wit, the big-picture multiyear chart of semiconductor stocks reveals that despite recent volatility, the bigger-picture uptrend remains intact. The SMH ETF overshot its steep uptrend in January of this year along with a very similar move in the broader stock market, which then led to a spike in volatility and a notable mean-reversion move back to the multiyear support lines and the lower end of the up-trending channel as marked by the black parallels.

Note that this current juncture around the $95-$100 area is what I refer to as a technical confluence area of support made up of the lower end of the channel, horizontal support as  marked by the blue box, and the yellow 50-week simple moving average. What’s great about this setup is that should this band of support break, we have well-defined stop loss levels to respect.

At the same time, while a bounce from here could occur, note that from a momentum perspective as per the weekly MACD oscillator at the bottom of the chart there is still plenty of downside potential through a multi-month/quarter lens.


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Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, note the layer of horizontal support that the SMH bumped into again this week, around the $94-$97 area. The daily MACD momentum oscillator is oversold territory, which does not mean a rally has to occur but does show that downside momentum is increasingly exhausted.

Lastly, see how yesterday the SMH ETF gapped higher and rallied following an exhaustive selling effort the day prior? This now sets up a good reward-to-risk trade to the upside using a stop loss at $95 and a next upside price target in the $102-$104 area.

Check out Anthony Mirhaydari’s Daily Market Outlook for April 27.

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