Rally in semiconductors today. Time to get in? Here’s my take. (July 05, 2017)

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SMH MU AMAT 

I want to look at semiconductors and this is why: I see on some of the leaderboards, such and such a stock is up a lot, and it is a semiconductor stock. So I thought I would just look real quick here at the Semi ETF ( NYSEARCA: SMH ). T his is a top, this is a pretty big deal here, a 2 percent move in a day does not really get it done. I think this is an important top here. At $90.00 you get a little bit of a run-up here, not much, and then a move lower again. So this is a decisive break below the 50-day moving average and I say you want to stay away from this.

We look at a couple stocks that might suck you in: Micron ( NASDAQ:MU ), earnings are out of the way, stock was in a volatility squeeze, the 50-day moving average was holding. Now, acknowledging the fact that you are going against the grain if you buy this stock, because the semis are week and I think there is a lot of selling into strength, if you are so inclined you buy this stock with about a 6 percent stop-loss on it and then you are fine. The problem is, it really only has about a 6 percent upside move before you can anticipate this stock hitting resistance. I just look at this and I don’t don’t really think there is a lot there.

Applied Materials ( NASDAQ:AMAT ), this is most definitely a stock that I would want to short into strength. It is a key breakdown. And if, and this is an if not when, if the stock rallies up to the 50-day moving average and then does not breakout above but instead kind of fails there, then that is a short signal right there. So you short the stock and then you have a buy stop basically right up here (imagine that is green instead of blue). You put a buy stop right up here. You only short it after it rallies up to a prior support level that failed, and that would be the 50-day moving average, right around 43.00ish. And then if it fails, then you cover your position with a very tight stop just above that level so if the stock does happen to continue to move higher at least you are not riding a short up, which is always unpleasant to do.

I just wanted to pass that on. Don’t get sucked in on this semiconductor rally. And be careful with the positions that you own. Be very selective with your stocks, you shouldn’t be owning too many of them, and you should have those on a tight leash.

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