Betting Our Chips On The Strongest Semiconductor Stocks

From the desk of Steve Strazza @Sstrazza

Yesterday, we wrote about the divergence in both structural and tactical trends between Dow Transports and Semiconductors. The bottom line is that Dow Transports (DJT), which is the traditional "Dow Theory" average, has been getting smoked relative to the "New Dow Theory" average, the Semiconductor Index (SOX).

While we don't know whether or not this can persist indefinitely or if these divergences will soon resolve themselves, we do know that Semiconductors remain one of the secular leaders and are thus an area we want to continue to bet on from the long side.

In this post, we'll outline some Trade Ideas in our favorite Semiconductor names.

Something all of these setups have in common is that they are exhibiting impressive relative strength vs the broader market. They also all resolved to fresh highs recently, which gives us a well-defined risk management level to trade against.

We have included relative strength ratios in the lower pane of all the charts, just in case there is any doubt that we truly are betting on the strongest stocks in the market.

Let's start with SiTime Corp (SITM) which just came public last fall. The IPO Index made new all-time highs this week so not only is this stock a part of a strong subsector, but also a growth name that's been trending well along with many other recent public offerings. There's a lot to like here already.

Click chart to enlarge view.

Price just made fresh all-time highs on both a relative and absolute basis, which is exactly what we're looking for in these setups.

We only want to be long SITM if prices are above 32. Considering this is a shorter-term base, our timeframe is 1-3 months with an upside price objective of 42.35.