A few days ago I said this very same thing about the SPY…
“Don’t ignore this pattern”.
However, this time I’m referring to a sector that can drive the direction of the market.
Read below for a quick, simple sector trade that every trader should be following even if you’re not going to trade it.
As you can see in the chart below, the Semiconductor ETF (SMH) broke out of a nice consolidation in late June and rallied nicely.
However, the rally was short lived as the market and it pulled back.
The pullback landed exactly where it should have expected to find support and then it rallied yesterday (Tuesday).
If the rally continues on Wednesday, this is an ideal set up for this group to rally. If the group rallies, then the market will likely also continue higher.
As a result, this is a great time to consider buying SMH because the setup is so clear, and the risk reward is great.
The support level that has held so nicely is the $110 – $109 level, so the stop is under $109.
A reasonable target is $120.
With that in mind, the entry should be over $111 (Tuesday’s high) and under 112 or at most $112.50. This way the $120 target is close to 3x the risk of stopping out under $109.
If SMH gaps over $112.50, be patient for an entry point under that level.
If the market moves higher there is a good possibility that SMH will exceed $120, so this is one to keep on your eyes on.
Rick Nartarian, Chief Investment Officer
The American Investor Daily