After breaking to new high of 2130, the S&P 500 found heavy resistance, as persistent economic fears and worries of a 2015 rate hike gave way to selling pressure. We knew that if the 50-day was broken to the downside, the next area of support was 2075.
That’s exactly where it found support over the last few days, testing triple bottom support dating back to early May 2015. If 2075 fails to hold near-term, we could easily test April 2015 support of 2060, and quite possibly March 2015 support at 2040.
Of course, that’s worst-case scenario.
I’m not so sure today’s 19 point move on the beloved index is sustainable, given Fed, Greece and underlying economic concerns.
At the same time, we don’t believe we’ll see a September rate hike, as many fear. Even Goldman Sachs, which we rarely agree with, has said there are “persuasive” reasons for the Fed to wait until 2016.
A September rate hike “remains a close call,” they note. That’s because there’s a great deal of economic uncertainty. And there’s no real danger of the Fed being behind the curve of inflation. The Fed also knows it runs the risk of crashing the markets.
The smart money isn’t betting on a rate hike either.
It all depends on the health of the economy. We also have to consider that a September hike makes no sense politically, given budget wars and a potential government shutdown.
Again, it’s all a wait-and-see. I’ve never seen a market this disconnected from reality… and I’ve been a trader for 16 years.
It is what it is… and we’ll find our way through.
Holds, Buys… and Something New
Today, while holding most open positions, I’m recommending that you sell to close half of the ZUMZ August 25 calls for quick gains. Be sure to hold the second halves of the trade, as the underlying stock claws its way out of oversold territory.
Allow the Deere June 85 put, and the Dow Jones June 180 put expire tomorrow. Even though the Dow did push to 17,700 lows, it wasn’t enough to jolt those DIA puts. We’ll be sure to make up for that loss… and more moving forward.
In the meantime, here’s a hot idea for you.
Take a position in the Market Vectors Semiconductor (SMH) ETF. It’s gaining traction at the lows, as our technical pivot points scream, “Buy me, you fool.”
As boring as semiconductors are, the stocks are still red hot. The industry is still red hot.
We have to remember that demand is about to get an even bigger boost from what’s known as the “Internet of Things”. All those ‘things’ will need an even greater amount of semiconductor technology.
As we’ve noted, think of a future filled with “buy” buttons for products and machines that can instantly re-order supplies—they’ll even be able to automatically reorder products as mundane as toilet paper.
IBM just invested $3 billion to build an “Internet of Things,” hoping to harness the data collected by smartphones, tablets, cars and appliances to help companies better manage their business.
Everything – and anything – you can think of will be connected by the Internet. And to run all of it, semiconductors are needed… a lot of them. We’re already watching, as surging demand creates a renaissance in the industry.
In 2011, the industry had global sales of just over $299 billion.
By 2014, sales reached as high as $338 billion, 13% growth over 2011.
Sales could easily run to $345 billion this year, and to $355 billion by 2016.
That’s impressive growth. The United States and China just reached an historic agreement that would wipe out tariffs on global trade on $1 trillion of high-tech products. The deal will cover more than 200 products, including semiconductors. In fact, these stocks have been some of the greatest performers of the last few years.
There are two ways to trade this opportunity.
One, buy the underlying SMH ETF up to $58.50…
And, or two buy to open the SMH November 2015 58 call up to $3.50.
Here’s the game plan. I have a price target of $60 – the ceiling. When and if it reaches this point, we will look to close the SMH positions and take a new short position in a Short ETF that benefits from falling semiconductor stocks.
Have a great weekend,
Ian