As the American football season extends past its halfway point, the weekend quarterback as developed a tolerance to his regular serving of chips and salsa. As the season progresses, many armchair quarterback find themselves evolving from a "mild" spice salsa, to the "Three Mile Island" variety as their taste buds crave a stronger dose.
The same always seems to be true for stock traders in the semiconductor, or "chip" sector as bullishness builds. As the bullishness builds, investors become more aggressive with their buying, taking on more risk, to spice up their portfolios.
But not unlike eating a spiced up salsa laden with habanero peppers that may be a little "too hot," temperament and control when trading the chip stocks.
Today's action has the "chip" stocks leading today's sector gainers with the Semiconductor Index (SOX.X) 334 +7%, in this afternoon's market monitor at OptionInvestor.com we've talked about how Dorsey/Wright and Associates Semiconductor Bullish % (BPSEMI), which recently achieved bull confirmed status and shows 56% of the stocks in the group having a "buy signal" intact with their charts, is perhaps also just past the mid-point (50%) bull run. While the bullish % range is 0%-100%, much like an American football field, analysis here as risk/reward at about 50/50 or mid-field.
As bullishness builds in the group from a late September low reading of 8%, it becomes important for new bulls to the group to carefully assess further upside in stocks they're looking to trade bullish in.
One stock that intrigues me based on a bullish call this morning out of Soundview that the semiconductor-equipment sector could be ready to see a rebound in the first-quarter of next year is the world's largest semiconductor equipment maker Applied Materials (NASDAQ:AMAT) $16.05 +6.5%.
Applied Materials Chart - $0.50 and $1 box
In recent weeks, traders and investors have been inundated with various bullish and bearish analyst calls on the semiconductor group. However, the SOX continues to trade rather bullish and a break above SOX 337 sets the stage for a test of August's highs near 377. With the sector bullish % "bull confirmed" and still some upside to the more "overbought" 70% level, I like a 1/2 bullish position in Applied Materials. More risk averse bulls can follow a bullish trade with a tight stop of $14.25, or those willing to give a little more room a stop at $13.90. A near-term bullish target (next month) would be near $19.00 where AMAT would be trading in the middle of overhead supply and right near its trending lower 200-day SMA.