Qualcomm (QCOM) and NXP Semiconductors (NXPI) were the big winners, each gaining over 3%. But rehashing what happened is not what we’re all about. Let’s take a look deeper.
The top eight out of ten gainers within the technology sector yesterday were semiconductors.
Why are the semiconductor stocks going up?
Keep reading to learn more about where I think semiconductors are going the rest of the year.
While global production is slowing, the semiconductor industry is expected to reach about $600 billion in 2022. That would be a 10% increase over last year and it would mean making all time highs. Even as tha pandemic is slowing and people aren’t playing games all day anymore, chips are still used in just about everything we use, from cars to appliances to factories. Of course there are the obvious items like laptops, phones and tablets too.
You’ve probably heard of chip shortages over the last two years, but as global demand slows, the end of the chip shortage could be near. But wait, wouldn’t slowing demand mean a bearish case?
My theory is that the chip shortage resulted in revenue misses for semiconductors and their customers, but now as supply can meet demand, and shipping returns to normal, I think we’ll get a more accurate idea of the value of the industry. I believe there were factory projects put on hold over the last two years with the shortage, and even though we may be going through a global recession, I think we’ll see more companies investing their cash into company infrastructure improvements. Now that chips are becoming more available, companies can put some of their projects back on schedule.
A potential catalyst to watch for is that U.S. lawmakers are maybe on the verge of approving $52 billion in subsidies and incentives for new semiconductor plants in the U.S.
Of course that could all change if the Fed raises rates by, (gulp), 1% at their next meeting. That would really hurt the growth stocks.
Here’s the SPY weekly chart and are currently below the 38.2% retracement from the pandemic low to the all-time high. The week is’t over yet so we may not finish below that level. If we can’t hold the 38.2% retracement, my next target down would be the June low of $362.17 with a longer term target of $349.21 (50% retracement).
Before I leave you for the weekend, I don’t like the price action right now so I’m sitting on the sidelines, waiting for more of a market direction to take place, but I understand that people like trade ideas each day.
If you think now is a good time to get into tech, you can do so with the ETF, QQQ.
However, if you completely disagree with my assessment of the semiconductor industry and you think the slowing demand is going to crush that industry, you can trade the SQQQ ETF.
SQQQ is an inverse, or sometimes called a contra, ETF. We’ve discussed them before. The ETF makes money with the underlying group of stocks go down. So, SQQQ will go up in price if the tech stocks continue to go down. Keep in mind the SQQQ is a 3x leveraged ETF, so that means it will move 3x the inverse amount of the QQQs. Triple leveraged ETFs are meant for shorter-term trading.
We will see how the semis trade today and next week.
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