The Exchange Traded Fund (SMH) provides for a solid risk-reward play. The ETF buys companies that do business in the semi-conductor industry, and of late the industry has been showing noticeable weakness. First with the slip below the critical 50-day moving average, (though it is currently trading above it after the rallies on Monday and Tuesday), secondly with the markets volatility that has been shown over the past week, if the market does indeed break (I believe it to be sooner rather then later) then this stock is heading down hard and fast.
Also emerging in this ETF is a head-and-shoulders pattern, that is indicative of a pending sell-off. The pattern hasn’t been confirmed yet, and won’t be until there is a break in the neckline (as shown with the yellow line connecting the previous higher-lows). But at current prices, you can play this stock to where if it makes new highs you get out, with minimal losses (only about a dollar of its highs). And honestly, I think it is going to struggle somewhat to hit new highs anytime soon, even in an unrelenting market.
Here’s the SMH chart…
