Semiconductors Breaking Out ($SMH)

market timing model:

– Signal generated on the close of April 24 (click here for more details)

today’s watchlist (potential trade entries):

$todays watchlist
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open positions:

Below is an overview of all open positions, as well as a report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based a $100,000 model portfolio. Changes to open positions since the previous report are listed in pink shaded cells below. Be sure to read the Wagner Daily subscriber guide for important, automatic rules on trade entries and exits.

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closed positions:

open position summary
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ETF position notes:

  • No setups triggered.

stock position notes:

  • No setups triggered. Note that we are selling 300 shares of $CLDX on the open.

ETF, stock, and broad market commentary:
p>In yesterday’s newsletter, we said, “The S&P 500 and Nasdaq have bounced up near the prior swing highs after an ugly selloff, so we could potentially see the market consolidate for a day or two to digest recent gains.” That’s exactly what happened in the session that followed, as the S&P 500 and Nasdaq Composite drifted in a tight, sideways range before closing unchanged on the day. The Dow Jones showed a bit of relative weakness and edged 0.3% lower. Turnover in both exchanges was on par with the previous day’s levels too.

As we have mentioned several times over the past week, we continue to see rotation out of the Dow Jones Industrial Average and into the Nasdaq Composite (and more specifically, its sibling Nasdaq 100 Index). This is positive because the last rally was led entirely by the Dow, while the Nasdaq lagged behind. But what appears to be happening now is quite the opposite, as the majority of recent trading days have seen the Nasdaq outperforming the Dow by a significant margin.

Why does it matter whether or not the Nasdaq leads the Dow? It’s significant because such sector rotation points to an increasing appetite for risk among banks, mutual funds, hedge funds, and other institutions. This is because the tech-heavy Nasdaq is generally considered to be more “risky” then investing in the “old school” Dow. Obviously, the potential reward from investing in the Nasdaq is typically much greater than investing in the Dow as well.

As part of our “top-down” strategy for ETF trading (as described in Deron’s ETF trading books), the next step to do upon determining which major index is showing the most relative strength is to drill down and find the specific sector ETFs with the most relative strength to the broader index.

A good example of this can be found by looking at the recent price action of Market Vectors Semiconductor ETF ($SMH). Despite the Nasdaq Composite being completely flat yesterday, $SMH still gained 1.0%. On a more significant technical level, the ETF broke out above a 3-month base of consolidation to close at a fresh 52-week high. This is shown on the daily chart of $SMH below:

$SMH breakout to new 52-week high

Assuming you’ve been a newsletter subscriber for at least a full month, you probably recall our initial bullish analysis on $SMH and the semiconductor sector from the March 28 issue of The Wagner Daily.

To refresh your mind, the best technical factor we liked at that time was that $SMH was breaking out above resistance of a nine-year downtrend line, which was only apparent by looking at the long-term monthly chart interval of the ETF.

Below is that same chart we showed on March 28, while $SMH was still in consolidation mode (trading below its 52-week high):

$SMH breakout on monthly chart

Now that $SMH has just broken out to a new 52-week high, the break of the nine-year downtrend line shown above is becoming confirmed. Because this is a trend reversal of such a long-term nature, it may provide us with many ETF and individual stock buying opportunities in the semiconductor sector; not only in the near-term, but (at least) in the intermediate-term as well.

In case you are new to momentum swing trading, it’s important to understand that ETFs and stocks breaking out to new 52-week highs typically provide us with our largest gains because these equities possess a complete lack of overhead price resistance (which would otherwise be created by sellers who bought a higher price). If you’re new to our overall ETF and stock swing trading system, click here for an overview.

Separately from the ETFs we trade, the majority of individual stocks in our swing trading strategy are small to mid issues, many of which are traded on the Nasdaq. A good example of how bullish divergence in the Nasdaq benefits us is that both of the individual stocks in our model trading portfolio cruised to fresh all-time highs yesterday, even though the Nasdaq was unchanged (and the Dow declined). Celldex Therapeutics ($CLDX) is now showing an unrealized gain of 20% since our April 9 buy entry, while LinkedIn ($LNKD) is presently up 7.5% since our swing trade entry of the same date.

Please note that we are selling 300 shares of $CLDX on the open to lock in some gains. We will look for the 10-day MA to provide support on the remaining 200 shares.

$AMBA continues to find support above $12, with with yesterday’s reversal candle stopping just shy of the 50-day MA:


The volume has dried up nicely in two of the past three sessions, which is bullish. If $AMBA can climb above the two-day high it will be back above the 10 and 20-day MAs. We plan to add to the position if/when the price action forms a handle (short-term consolidation) below the breakout pivot.

In yesterday’s report we incorrectly reported the short interest in $BLOX as 83%. The actual short interest is 2%. This in no way changes the setup. While we would love to have high short interest, it is not a requirement (its a bonus). For example, $LNKD as has stormed to new highs with only 4% short interest.

relative strength combo watchlist:

Our Relative Strength Combo Watchlist makes it easy for subscribers to import data into their own scanning software, such as Tradestation, Interactive Brokers, and TC2000. This list is comprised of the strongest stocks (technically and fundamentally) in the market over the past six to 12 months. The scan is updated every Sunday, and this week’s RS Combo Watchlist can be downloaded by logging in to the Members Area of our web site.

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