I've often wrote that I like to monitor some of the "big guns" in the various sectors to get a feel for how things are shaping up. In the semiconductor sector, the "big guns" are Intel (NASDAQ:INTC) and Applied Materials (NASDAQ:AMAT). Sometimes this will draw fire from the Advanced Micro Devices (NYSE:AMD) bulls, but in my humble opinion, AMD tends to get fed scraps when Intel can't handle demand.
Intel Chart - Daily Interval
As time passes, I'm getting more bullish on shares of Intel (NASDAQ:INTC) and over time, this will have me turning more bullish on other semiconductor stocks. I'm a firm believer that the "big guns" in the sector lead and give us a good pulse on just how bullish a broader sector move can become longer-term. Semiconductor stocks and the industry is cyclical. It's not always in a growth phase and suffers its downturns. I'm now beginning to think a bullish cycle began on December 5th, when Intel finally traded the $33 level. At least, that's where I believe the MARKET was convinced that a new cycle was beginning.
Applied Material Chart - Daily Interval
I was hoping for a pullback in Applied Materials (NASDAQ:AMAT) near the $37 level as a point for bullish entry. She's not cooperating thus far. I'm still hopeful as the NASDAQ-100 bullish percent continues to decline. I'm noting some similar levels of support starting to firm in AMAT like we're seeing in Intel (INTC). If the "big guns" in chip and chip equipment sector is finding some support on pullback, then my thinking is that the MARKET is starting to believe in a new longer-term bullish phase for the group.
Institutions "love" to get exposure to big liquid stocks like Intel and Applied Materials. Both of these companies have a history of giving truthful and accurate guidance. Analysts like that as it doesn't make them look like fools when the company's report earnings that are far away from the analyst's estimates.
In the past, I've mentioned how Advanced Micro Devices (NYSE:AMD) management has had some trouble giving guidance. Some Wall Streeter's see that as a lack of vision and advise their clients to expose more capital toward Intel if they want exposure to the chip processor segment.
I like both INTC and AMAT as LEAPS plays for options traders. If you're an investor that doesn't necessarily want to expose a large amount of capital in either of these stocks for more than a year, then think about adding a LEAPS strategy into your trading plan.
For instance. An investor willing to buy 100 shares of Intel at $35, with a stop at $30, is basically risking $500. The Intel January 03 $35 calls (VNLAG) are currently offered $5.80, which would cost about $5.80. Here's a way a trader can get some exposure to Intel, risk roughly the same amount of capital in an option that he/she might risk in the stock and not have to worry about the trade on a daily basis. What you do with this type of "mentality" is understand the risk and accept it. Get that worry out of the way immediately. The most you can lose is $580 plus commission, where as a $3,500 stock investment may be too much capital exposure for the time you have to keep an eye on things.