CNN Money’s “Fear and Greed” Index oscillates from fear to greed and back again, and most market sectors fluctuate with its shift in sentiment. Today its inevitable shift appears to have begun as the CNN exited the fear zone.
As a result I’ve been looking for an oversold sector that has been known historically to run up hard and fast when the time comes.
In this example, it’s the semiconductor stocks and SOXL, the 3xLeveraged ETF for the sector. The last time the market shifted from a state of fear to one of greed (see chart below), SOXL rallied from about $29 to as much as $40 a share, approximately a 37 percent advance in less than twenty days.
This what “swing trading” is all about.
Among the top holdings in the ETF are TXN, QCOM, INTC, and BRCM, but more vibrant semis include AMBA, NPTN, SWKS, FSL and AVGO, and I suppose Apple-supplier NXPI if AAPL mounts rally with the market. Semiconductors (and there are a lot of them) tend to be all over the place so a diversified basket may be best — SMH, for an ETF without leverage, and SOXL for one with leverage.
Not recommending anyone do anything without one’s own due diligence, but as far as I’m concerned, this is a beaten-down sector with a lot of beaten-down stocks (I’m bottom-picking here) and it is likely going to be a sector worth trying to ride on the next rally.
(Click on chart for a larger image)