ETF Trade Ideas For The Week Ahead: The Rally In Semiconductors & Biotechs Probably Isn't Done

Cyclical sectors have rallied hard since the beginning of October but I don't it's done yet. I expect stocks to continue drifting up through the end of 2019 before pulling back in the start of 2020.

Investors tilted towards cyclical sector have likely been pleased with their portfolio's performance over the past month. Healthy economic readings along with the general belief that trade tensions will slowly continue to ease has many adding risk to their portfolios.

As I mentioned last week, I expect current sentiment to continue through the end of 2019 pushing the S&P 500 towards the 3200 level before beginning to pull back in the 1st quarter of 2020.

With that in mind, cyclical trades are going to be my focus for the week ahead.

iShares PHLX Semiconductor ETF (SOXX)

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When a sector rises more than 50% in less than a year, I tend to favor taking some chips off the table and locking in some gains. With semiconductors, however, I just don't see any reason to.

Recent earnings reports from top sector components, including Intel, Qualcomm, Applied Materials, AMD and NVidia all delivered healthy results and, in many cases, improved guidance for 2020. The trade war was supposed to hit semis especially hard and, while there have been speed bumps along the way, the sector is still going strong.

With trade tensions heading more in the direction of easing instead of worsening, I expect the economic backdrop for this group to continue improving. Some trade resolution is already priced into this group but I think there's still more upside ahead.

Consumer Discretionary Select Sector SPDR ETF (XLY)

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The discretionary sector has been one of the wonkier groups of the past six months. Everything has been teed up for a rally but it's been nearly dead money since May.

Last Friday's retail report could be signaling some of the problem. Segments, such as groceries and home goods, showed healthy gains but the more cyclical areas of retail, such as electronics and home furnishings, were weak. We've heard a lot about the strength of the consumer over the past few quarters but this could be an indication that not all is well below the surface.

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Disclosure: None. 

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