Today, I want to talk briefly about what’s been happening in the semiconductor industry.
I’m a day trader, so I don’t often focus on specific sectors or industries, but this discussion will circle back to day trading!
It’s been a rollercoaster for semiconductors over the last month, to say the least.
If you’ve been following the sector, you know that the semis are always at the heart of tech trends, and this past month was no different.
We saw some nice gains early on, especially from the big names like NVIDIA Corp (NASDAQ: NVDA) and Advanced Micro Devices Inc. (NASDAQ: AMD).
Besides great earnings, especially from NVDA in April, companies in this sector have been riding the AI wave, which has caused the market to push their stock prices up…
Investors piled in, betting on the future of AI and advanced computing, and this kept the bullish sentiment alive and running strong.
But then that sentiment reversed itself…
This headline from July was one of many on the subject:
Of course, any other stocks that have some relationship to the AI space, like NVDA and AMD, also reversed course.
Adding fuel to the fire, the broader market started getting nervous about interest rates and disappointing economic data.
We saw a pullback across the board which pulled all the big runners down even further.
NVIDIA Corp (NASDAQ: NVDA) One-Month Chart:
NVDA One-Month, 1-hour Candles Chart; SteadyTrade
Advanced Micro Devices Inc. (NASDAQ: AMD) One-Month Chart:
It wasn’t all bad when semiconductor stocks started failing.
Why?
There are always two sides to every trade…
Enter Direxion Daily Semiconductor Bear 3X Shares (NYSE: SOXS)…
Yes, that’s a mouthful.
Basically, SOXS is a leveraged exchange-traded fund (ETF) that bets against the semiconductor sector. It’s considered leveraged because it uses short positions and other derivatives.
Here’s the description of SOXS from ETF.com:
So now I’m getting to the part of the discussion that will interest day traders…
SOXS started showing up on our Oracle list over the last several days.
That’s a good thing because Oracle caught it and alerted us to intraday gains on SOXS, not just once but on three separate days.
If you don’t know about our proprietary algorithmic trading tool, you should! It’s THE tool for day traders.
Every morning, it scans the entire market for patterns and trends and then applies its algorithm to produce a list of 20 names with bullish and bearish signals and corresponding entry prices.
And it gives us potential winners every single day…sometimes really big winners.*
Oracle is a system I can’t trade without. Learn more about it here.
Take a look at the two biggest returns Oracle alerted us to recently on the SOXS ETF.
The first one happened on August 1st…
SOXS Oracle Chart 8/01/24
And then again, just this past Wednesday…
SOXS Oracle Chart 8/7/24
Remember, these were alerted by Oracle, a tool for day traders, so both of these gains occurred within the same day.
If you haven’t figured it out yet from this example, ETFs are a great way to trade on sector-wide price action…in this case, a pullback in the semiconductor industry.
Table of Contents
How does an ETF work?
An ETF is a type of investment fund that’s tailored for individual investors like you and me.
It owns a mix of underlying assets, like stocks, bonds, commodities like gold, oil futures, and foreign currencies.
All of these assets are bundled together, and ownership is split into shares that you can buy and sell during normal trading hours, just like stocks.
It’s also similar to a stock in that it has a ticker symbol and intraday price data.
What platform do you use to track your stock positions?
My top choice is StocksToTrade.
It has technical indicators, intraday data, dynamic charts, and stock screening capabilities that day traders like me look for in a platform.
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Here are a few other important points about ETFs:
The total outstanding shares can change daily: Unlike a company’s stock, the issuer can constantly create new shares and redeem existing ones,
There is no daily Net Asset Value (NAV) calculation: Unlike mutual funds, ETFs do not calculate their NAVs at the end of each day.
Trading is very simple: ETF shares are traded on stock exchanges, so you can buy, sell, or transfer them just like shares of company stock.
There’s an ETF to suit any investor:
Index ETFs track a specific index like the S&P 500 or NASDAQ.
Commodity ETFs trade on the price of a commodity, like gold, oil, or corn.
Inverse ETFs, like SOXS, are designed to make bets on a decline in a market or index.
Actively managed ETFs aim to outperform a specific index instead of just tracking one.
Industry ETFs trade on the performance of a specific industry.
Foreign market ETFs track non-US markets, like Japan’s Nikkei.
Bond ETFs provide exposure to various bonds, from U.S. Treasuries to corporate and municipal bonds.
Style ETFs trade on a specific investment style or market cap, like large-cap value or small-cap growth.
ETFs do come with their drawbacks…
We’ve already discussed some of the positives. Here are some more:
Flexibility: You can buy and sell ETFs throughout the trading day, just like regular stocks.
Cost-effectiveness: They typically have lower brokerage commissions, and unlike mutual funds, which are similar in structure, they have no sales load.
Tax efficiency: ETFs are often more tax-efficient than other securities.
Order variety: Just like the stocks of companies, you can place various order types (like limit orders, stop-loss orders, or buy-on-margin).
Quick market access: You can quickly move in and out of markets, which is perfect for day trading, and great if you need to get out of a position fast.
Portfolio diversification: ETFs allow you to diversify your portfolio with a variety of assets like equities, bonds, or commodities or alternative assets.
As with any type of investment, there are risks and negatives:
Cons of Investing in ETFs:
Wide Bid/Ask Spreads: Some thinly traded ETFs have large bid/ask spreads, which can make getting out of these types of positions more challenging.
Tracking Errors: ETFs generally track their underlying index well, but technical issues can cause discrepancies.
If you want to know more about managing your trading risk and not just with ETFs, watch my video:
My final thoughts…
ETFs, or exchange-traded funds, offer a simple way to diversify your portfolio while staying within the familiar stock market environment.
As always, stay informed, educate yourself, and paper trade before you risk your own capital, especially if you’re new to trading or ETFs.
And speaking of educating yourself, register for one of our free live training webinars that are happening throughout the day.
You’ll learn everything you need to know to become a successful trader.
Have a great weekend, everyone. See you back here on Monday.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
Trading ETFs and stocks is exciting and very rewarding…I know because I do it every day.
Have you ever considered trading options as well?
If you have, you should check out this presentation on Thursday, August 15th, at 8 p.m. Eastern.
My colleague and seasoned options trader, Jeff Zaniniri, has developed an AI-powered algorithm called GAMMA that exploits a market inefficiency, or glitch, within certain options contracts.
These glitches trigger alerts in the system, which Jeff will share with his GAMMA subscribers every Monday, Wednesday, and Friday.
He’ll give you all the details during next Thursday’s live presentation, but you have to be there.