Companies that operate within the semiconductor industry supply the products that underpin much of modern-day convenience. Based on the chart patterns discussed below, it appears as though bullish active traders are betting that the recent surge in momentum will continue. More specifically, prices have recently risen above major levels of resistance, which could be a signal that the long-term trend is headed higher from here.
SPDR S&P Semiconductor ETF (XSD)
Active traders often turn to popular exchange-traded products such as the SPDR S&P Semiconductor ETF (XSD) when they want to get a sense of where a specific market niche is headed. For those who are unaware, the XSD ETF provides targeted exposure to the semiconductor industry and comprises 35 holdings from across the United States.
As you can see from the chart below, the price fell sharply below the support of its 200-day moving average during the panic selling that dominated March. The bounce from the lows was strong enough for the price to regain the newfound resistance, and recent price action suggests that the bulls are in control of the momentum again. Based on the pattern, active traders will likely set target prices near the upper trendline at $115 and protect their position by placing a stop-loss order below $95.35 in case of a sudden shift in market sentiment.
NVDIA Corporation (NVDA)
The top holding of the XSD ETF, which is also the most well-known semiconductor stock at the moment, is NVDIA Corporation (NVDA). As you can see from the chart, the break above the 200-day moving average in August 2019 was a clear signal of the start of a major uptrend. March's sell-off sent the price of the stock toward the influential support level, and the subsequent bounce has now led to a break beyond the previous swing high, which is a sign that many trend traders will use to mark the start of a move higher.
Bullish traders will likely anticipate a continued surge in buying pressure. Traders will likely protect long positions by placing stop-losses either below the horizontal trendline near $313.50 or the combined support of the 200-day moving average and ascending trendline near $226.98, depending on risk tolerance and investment horizon.
Inphi Corporation (IPHI)
Another top holding of the XSD ETF that will likely capture the attention of trend traders is Inphi Corporation (IPHI). As you can see from the chart below, the price has been trading within an established uptrend for most of the past year.
While the sell-off in March had many traders worried about the conviction of the bulls, the subsequent bounce and break above the ascending trendline has eased the concern and put the momentum back in the favor of the bulls. Bullish traders will likely expect the uptrend to continue and place stop-losses below one of the aforementioned support levels in case of a sudden shift in momentum.
The Bottom Line
Semiconductors and technology stocks in general have reiterated their critical role in modern-day society. Traders looking to gain exposure to the niche semiconductor industry may want to take a closer look at the XSD ETF and its top holdings because many of the charts are pointing to a higher prices from here.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.
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