Semiconductors Breaking out with the Broad Market

May 19, 2015
By Vlad Karpel

The Broad markets, $SPX & $QQQ, continue to break out to new highs with the semiconductors now joining the party. The $SMH, which is the semiconductor ETF, has broken out of a two-month consolidation. This now makes the resistance level of $57.30 the new support, finishing the day .02 off the highs at $57.58.

I want to look at two stocks in the ETF, roughly four percent each, also breaking out to the upside. The first is Avago Technologies ($AVGO) which over the past two sessions has broken out of a month long wedge. I used the Stock Forecast Tool and over the next 10 days we have it as a buy, with a range of $127-$144. With the Stock’s Implied Volatility Rank at 55 percent you could look to sell the July $120-$115 put spread for ~$1.50. The stock has a probability of expiring above $119 of ~70 percent.

Another Semi stock that broke out yesterday is Skyworks Solutions ($SWKS) which has been in a two-month consolidation, breaking out yesterday and settling well above resistance of $100. The 10 day forecast is a range of ~$97-$103, and is a mixed trade. Implied volatility is low, so not a big expectation of violent moves. I would look at the Iron condor in July. I would look to Buy 1 $SWKS Jul15 90 Put/Sell -1 SWKS Jul15 95 Put and Buy 1 SWKS Jul15 120 Call/Sell -1 SWKS Jul15 115 Call, for a total credit of $1.35. There is a 60 percent probability of being between the short strikes into expiration, and less than a 25 percent probability of being below the short strike prices at expiration.

Have a great trading day!

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