Lately the entire world is trying to figure out how to react to the semiconductor, aka computer chip, shortage.
Naturally, as traders, you and I will react by profiting from this latest macroeconomic issue.
But don’t buy any stocks or ETFs just yet. This sector is a “herding cats” sector, which means it’s hard to pick stocks right now.
Although the demand for semiconductors has increased, the technicals just don’t back up the entire sector as a whole.
That’s because there are only a few companies that actually produce new semiconductors.
In fact, my charts are showing me there’s one blue-chip stock that you must get rid of right away – it’s on track to destroy your wealth.
My charts are also showing me the exact price targets for the two best stocks in the sector.
Here’s how to profit from the semiconductor shortage…
The Semiconductor Situation
Historically, June is a red month for the semiconductor sector. Over the past 20 years, this sector has dropped into the negative 56% of the time.
But looking at the SPDR S&P Semiconductor ETF (NYSE: XSD), we can see that this year, the sector is up 8% in the month of June. Yes, the shortage has created newfound demand for these computer chips. And the sector is moving into a bullish trend with a volatility event forming.
It recently broke out of its volatility band and you can already see shares trending higher.
I’m personally expecting the XSD to go up as high as $220, and we have an opportunity to get into this trade at a 20% pullback. This sort of discount is extremely rare in today’s market!
But the technicals simply don’t bode well for all the stocks in this sector.
Which is why I’m going to go over the three different ways you should prepare for this semiconductor shortage.
CJ’s Semiconductor Play #1:
Buy Analog Devices, Inc. (NASDAQ: ADI)
Sell at $185
ADI is hands down the best sleeper pick of the entire sector. The stock is trading at an all-time high right now.
Back in May 19, shares shot out of a cannon and began rallying higher.
It went up from the $140 level to the $165 level in a matter of days and the stock is still trending around this price. But now, the stock is set for a volatility event similar to the one we’re seeing in the XSD.
Not to mention, it just broke above its 50-day moving average.
I think it could move well above the $190 level, but I’m personally targeting a $185 price point. It could shoot past $190 but I’m personally targeting $185.
Here’s where things get even more interesting.
Short interest is hard to find in the semiconductor sector, yet this stock has a short interest ratio of 12.8%.
Giving us an opportunity for short squeeze profits on top of a technically bullish market pattern.
If you like, you could also play this trend with a call option.
CJ’s Semiconductor Play #2:
Buy NVIDIA Corporation (NASDAQ: NVDA)
Sell at $850
NVDA is the darling of the entire sector and it’s currently the best in breed stock of its industry. The stock has been going ballistic ever since May 19, when it shot above its 50-day moving average.
NVDA is pretty much a carbon copy of ADI, but it’s on steroids. Financial analysts will continue to announce higher and higher upgrades to the price.
They’ve already jumped up from $750 to $1,000. I fully agree with their sentiment and expect this stock to hit at least $900.
Let me be perfectly clear, NVDA is the bandwagon stock you want to ride right now.
Remember, the trend is your friend, and hopping on the train now will be an extremely profitable decision.
But there is a catch. This is a more crowded play than ADI.
It’s a trending trade that will outperform the market but the sheer amount of people in it is a huge downside.
When analysts eventually lower their price predictions, people will abandon ship and the stock will move lower.
CJ’s Semiconductor Play #3:
Sell Intel Corporation (NASDAQ: INTC) ASAP
ASAP means “as soon as possible,” and that’s how quickly you should get rid of any INTC shares you have right now. The company recently delayed manufacturing new chips and it’s revealing some cracks in the armor.
Which is a shame because INTC was one of my favorite semiconductor stocks just this past November because they pay very nice dividends. But in just a few short months, the company has slid downhill.
The great INTC has become a directionless company and its leaders have no clue how to steer the ship.
They’re still trying to figure out what to do and that is not a good sign.
Everything from their business decisions (moving into the automobile space), to their stock’s technical patterns are trending downwards.
Last quarter they lost 6.2% in their year-over-year revenue. And with earnings reports coming out on July 22nd, it’s very likely we’ll see investors hedging their positions to prepare for even lower numbers.
That’s not all, the stock is heading towards a volatility event that could send it straight down to bear country.
You can tell by the bars at the very right of the chart below, they’re bouncing up and down in a volatility band that’s heading lower.
I’ve got my eyes open for which stocks you need to buy, and which stocks you need to sell, to profit from the unpredictable post-pandemic market. So please make sure to stay tuned for my next edition of Straight-Up Profits.
Until next time,
— Chris Johnson
Source: Straight Up Profits