• Trading 101: Potential Pair Trade?

    by  • August 2, 2013 9:19 am • Trading 101 with Peter Bryans • 0 Comments

    This market has been ripe for pair trades. Even with yesterday’s nice move higher in the indices, there has been a slow, steady grind going on underneath the surface. A lot of stocks have been resuming their leadership roles (AAPL, for instance), and others have been lagging a bit more than usual (GOOG has slowed a bit). Nonetheless, I continue to monitor certain technology stocks and, more specifically, the semiconductors.

    The $39-$40 area on the SMH has been key. The daily chart (below) shows how sloppy this sector/industry has been lately. Regardless of how the daily charts look, there are still some nice trending stocks that have been out performing the market.

    (courtesy of StockCharts.com)

    Cree (CREE) boasts a YTD gain of over 100%. Even though the stock has doubled in 2013 alone, short interest levels remain elevated. Note how the stock is trending above some major moving averages–the 20 day, 50 day, and 200 day moving averages are all rising and the stock has been trading well above them for nearly all of 2013.

    (courtesy of StockCharts.com)

    Contrast this semiconductor firm with Veeco Instruments (VECO) that is featured below. The daily chart illustrates a clear downtrend, and the stock is under performing the broad market since hitting a new 52-week high in May. While its YTD gain is still +17%, VECO has declined nearly 20% since hitting that 52-week high of 43.18 (this is based upon VECO’s closing price of$34.72 on 8/1/13). The equity is also struggling to take out its 20-day moving average and any move below the 200-day moving average could result in another move lower.

    (courtesy of StockCharts.com)

    Going long CREE, and short VECO could be a solid pair trade–but this is merely one example. There really seems to be a lot of opportunities in the semiconductor space on both the long and short side, and correlations remain rather low. A long/short strategy is not always the best trading style, but taking advantage of the trading environment that we are in now, and looking for pair trades, is probably a wise move.

    Good luck trading out there.

     

    About

    Peter Bryans joined the Schaeffer's Investment Research trading team as a Trader in April, 2012. A graduate of the Fisher College of Business at The Ohio State University -- where he concentrated in Finance -- Peter previously held internships with an insurance broker and a wealth-management firm. In his current role, Peter trades a variety of our real-time option services and also hosts our "Options Apprentice" weekly webinar presentations.

    http://www.schaeffersresearch.com

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