In recent weeks and months we've pointed out how a broken downward trend to the upside eventually served as support and have alerted traders to some nice bullish moves from this pattern in the healthcare sectors. Now we're going to be looking for the semiconductors to try and repeat this technical pattern over the next couple of sessions.
Semiconductor Index Chart - Daily Interval
Yesterday's action in both the NASDAQ-100 and the semiconductors shows the bullish percent indicators for both sectors showing some internal strength as enough buy signals (demand exceeded a previous level of demand) has the bullish percent charts reversing into columns of X and signaling some internal repair is starting to take place.
That has be looking at the Semiconductor Index (SOX.X) and trying to identify a level to be looking for some support to set up a trade in Applied Materials (NASDAQ:AMAT) $25.93 -4.98%.
In recent weeks and months, I've pointed out in the healthcare sectors (HMO.X) and (RXH.X) how downward trends on both of those indexes when broken to the upside, eventually served as support on a pullback just before each index rocketed higher.
In the SOX.X we're seeing some smaller downward trends when broken also serve as support for some nice moves higher and currently I'm monitoring the SOX.X to see if she can find some near-term support at a recently broken downward trend at/near the $575-$577 level. MACD on the daily chart has started to round higher and just recently crossed above the signal line. Thus I'm looking for bullish entry in strong stocks in the sector on this near-term pullback.
Earnings have been relatively strong in the semiconductor equipment sector and this is the area I'm going to be focusing on. Stocks on the list are AMAT, KLAC, NVLS to begin with. I prefer to stick with the "big gun" in the group and will start with AMAT, which recently split its shares 2:1.
Tomorrow is option expiration, so I expect some near-term volatility due to this event. My ideal entry point for a bullish trade in AMAT is as close to $25 as I can get. Next Monday we should have a June contract to trade in.
Since the summer months are a "seasonally" slow period for technology, I'm rather hesitant at this point to buy July. By waiting until Monday, I can remove 2-days of option expiration time erosion from the trade.
Currently, I'm suggesting that traders only be looking for 1/2 position as we're looking to buy a pullback and we never know for sure where the pullback is going to stop. Then if the bounce comes, a trader can then average up in the trade and round to full positions on a breakout type pattern.
One thing I've also noticed in recent weeks in a rather range- bound environment is that it has been tough to make some cash when buying "break outs" and the better gains have come from buying pullbacks. This can be "scary" for a trader when he/she is buying a stock that is pulling back near-term, but under current market conditions, this is what a trader must deal with.
By establishing just 1/2 positions a trader then understands they are simply risking a lesser portion of their capital and can therefore have some "comfort" in buying a pullback. The key will always be to try and stack the odds in your favor and stick with stocks that show strong relative strength versus the market (S&P 500) and sector you're trading in. These are often times the stocks where institutional money will stay committed to and support the stock on the pullback as they accumulate positions longer-term.