This One Sector Holds The Cards In This Market
As Professional traders and investors we are conditioned to look at the markets through different sectors and Industry groups as we formulate a strategy. Over the years the most popular sectors to focus on for clues as to where the market is headed have been primarily the financial, transportation and retail sectors. While all of these industry groups are very, very important, there is one industry group that is often overlooked. This overlooked group holds the cards to the market, it is the semiconductor sector.
Semiconductors are simply everywhere, in every device and the electronic product that we use every single day.While many people believe that semiconductors are primarily in computers and cell phones, they are actually in our cars and countless products around the house... just about everywhere we look. We all are now living in the digital age and semiconductors are at the forefront.
Traders/Investors can easily monitor and trade the semiconductor sector by looking at VanEck Vectors Semiconductor ETF (NYSEArca:SMH). This important ETF gives us all a solid diverse picture of the overall semiconductor industry group. The top holdings in this ETF include:
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Taiwan Semiconductor Manufacturing Co TSM US
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Intel Corp INTC US
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Nvidia Corp NVDA US
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Texas Instruments Inc TXN US
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Asml Holding Nv ASML US
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Lam Research Corp LRCX US
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Qualcomm Inc QCOM US
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Advanced Micro Devices Inc AMD US
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Broadcom Inc AVGO US
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Applied Materials Inc AMAT US
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NXP Semiconductors Nv NXPI US
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Micron Technology Inc MU US
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Analog Devices Inc ADI US
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KLA Corp KLAC US
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Xilinx Inc XLNX US
There is a saying that I like to use when trading the markets and it goes like this, "when the semi’s are strong there is nothing wrong, when the semi’s fail you better bail." This industry group is my leading indicator since it encompasses so much of what we use and do everyday.
So what is the SMH telling us now?
Currently, the SMH is trading around the $126.70 area. This important ETF is trading above its key 50-day moving average. It just made a new all-time high on October 29, 2019, so there is nothing to be concerned with at this time. The SMH is still showing strength and in an uptrend up despite several leading semiconductors stocks reporting weak earnings. This is the market's way of talking to us. Traders should note that a close below the 50-day moving average would be a warning sign that there are problems in the semiconductor sector, but more importantly the overall stock market. At this time, the 50-day moving average is around the $120.00 level so markets are OK right now, risk is still on in the markets. Therefore, all you need to know as a smart trader/investor is keep that 50sma on your charts. Should the SMH break below its important 50-day moving average in the future, it is a signal that the overall markets are in trouble and risk is off the table. This one sector you need to watch and really holds the cards to the market.