As traders, we should always be looking at particular sectors/industries in the market for pockets of strength. Not only is it important to be aware of sector rotation, but we should always revisit the same strong sectors to analyze whether key levels have been breached or if new highs have been hit. As far back as October, 2012 I have been trying to keep tabs on the semiconductors and have been focusing on specific names. In March of this year, I revisited the SMH (exchanged-traded-fund for semiconductors), and analyzed a key level that I was watching. It’s time to revisit the semis again—but this time to look at some stocks.
We’ll start with Cree, Inc. (CREE) which has been on a tear lately (note that these charts and any relevant data were taken intraday on 5/2/13). CREE reported earnings earlier in April, and has made a nice run since. It broke away after its Q4 earnings announcement in January of this year, and hasn’t looked back. Along with many other semiconductor names, CREE has really broken out, and boasts a year-to-date gain of nearly 60 percent. Note the pickup in volume at the bottom of the chart—this is a bullish sign. I think that buying this name on any pullbacks is a good idea—just be sure to time your entry for the best possible risk/reward scenario.
Applied Material (AMAT) has also posted a solid year-to-date return—above 27 percent so far. After breaking out of its channel that it formed in February to late April, AMAT has made a sharp, impressive move higher. I think that if AMAT makes a pullback here, and even consolidates higher, then it could present a good trade. Be aware that AMAT has earnings scheduled after the market closes on Wednesday, May 15th. Keeping an eye on this name before and after earnings could give you a good “feel” for the stock and its reactions to different days in the market. As long as semiconductors stay strong, AMAT is certainly a good candidate for a long going forward.
Lam Research (LRCX) is probably my favorite setup. LRCX has been climbing higher in 2013, after some sideways action that started in February. The recent gap higher on the chart was from a positive earnings reaction on 4/25. Since this time, LRCX has moved sideways, and is somewhat “digesting” these big gains. Currently, it is forming what is known as a “bull flag”. Also, note the big pickup in volume recently. Again, this is another bullish sign. Watching this one for a continuation move higher presents a good risk/reward setup. I’d target a move up to possibly $50.
When you’ve found a good sector, digging deeper for tickers that you like will lead you to good trading setups. In my opinion, patience is such an understated quality of a good trader. It can take months for the sectors or industries that you like to establish themselves as market leaders. With the semiconductors, this was certainly the case. Were it not for the fact that I continually revisited many of these names, I might have missed out on the likes of CREE, AMAT, and LRCX. Always go back to what you know and what you have been analyzing thoroughly—this will undoubtedly lead to winning trades.