Recent strength in the semiconductor sector has restored faith
in the ability of that group to set the tone for technology. And
when we stop to consider that the 800-pound gorilla of
Apple
(
AAPL
) is taking up an increasingly disproporationate amount of
technology indices and
ETFs
(including the Technology Select Sector SPDRS ETF, a common proxy
for the technology sector as a whole), the performance of
semiconductor stocks in recent days relative to Apple-dominated
tech has been perhaps that much more impressive.
For short-term traders focused on buying weakness and selling
strength, there have been precious few opportunities to participate
aggressively in these sectors. The
Market Vectors Semiconductor ETF
(
SMH
), for example, has only closed in oversold territory for back to
back sessions once since climbing back above its 200-day moving
average in January. But even this is better than what the
Technology SPDRS
(
XLK
) have provided mean reversion traders since returning to bull
market territory. XLK has only closed in oversold territory once
since rallying above its 200-day moving average in late
December.
Strength in technology and semiconductor stocks has meant higher
ratings
and big, short-term edges in inverse leveraged tech and
semiconductor ETFs like the
Direxion Technology Bear 3x Shares
(NYSE: TYP). TYP, which is inverse leveraged to three times the
daily returns of the Russell 1000 Technology Index, has earned
"consider buying" ratings of 9 out of 10 as of Friday's close, and
has a positive, short-term
edge
of nearly 1%.
Another option for traders, especially those wanting to focus
specifically on the potential for a reversal to the downside in
semiconductor stocks, is the
ProShares UltraShort Semiconductors ETF
(
SSG
). The ProShares UltraShort Semiconductors ETF has also earned
"consider buying" ratings of 9 out of 10 in trading on the final
session of the week, having pulled back for the last four days in a
row.
The last time the ProShares UltraShort Semiconductors ETF earned
a 9 rating, the ETF finished higher the next day by more than one
and three-quarters of a percent, and was up nearly two and half
percent five days later. SSG is built to return twice the inverse
of the Dow Jones U.S. Semiconductor Index.
Traders may want to note the potential for catalysts early next
week in the form of quarterly earnings announcements from
Hewlett-Packard
(
HPQ
) and
Dell
(DELL). Although neither stock is among the top holdings of the
XLK, for example, nor makes up a disproporationate amount of the
Russell 1000 Technology Index, news that causes traders to
accelerate profit-taking in formerly
overbought
technology stocks like HPQ and DELL could easily reflect positively
on ETFs inversely correlated to the sector as a whole.
Coming Spring 2012: the second edition of
How Markets Really Work: A Quantitative Guide to Stock Market
Behavior
by Larry Connors and Cesar Alvarez.
Click here
to learn more.
David Penn
is Editor in Chief of TradingMarkets.com