Supply shortages and strong demand for semiconductor products are combining to create one of the strongest investment themes of 2021. The support from ascending trendlines is creating a clear guide for active traders looking to place buy and stop orders. In this article, we analyze several charts from across the semiconductor sector and try to determine how traders will look to position themselves over the weeks and months ahead.

Key Takeaways

  • Supply shortages combined with strong demand for semiconductor products is setting up one of the most dominant investment themes of 2021.
  • Nearby support levels are creating clear guides for active traders looking to place their buy and stop-loss orders.
  • Analyzing top holdings of popular semiconductor exchange-traded funds (ETFs) could be one idea for how to generate quality trading candidates.

iShares PHLX Semiconductor ETF (SOXX)

Active traders who want to gain exposure to niche sectors often turn to exchange-traded products such as the iShares PHLX Semiconductor ETF (SOXX). Fundamentally, the SOXX ETF comprises 30 companies from across the United States with exposure to design, manufacture, and distribution of semiconductors.

Looking at the chart below, you can see that the price of the fund has steadily been moving higher since the March lows of 2020. The long-term moving averages and dotted trendlines have clearly acted as strong guides for those looking for opportunities to buy during retracements. Based on the pattern, we would expect bullish traders to place buy orders near current levels and then protect against a shift in market sentiment or underlying fundamentals by placing stop-losses below one of the noted support levels based on risk tolerance.

Chart showing the share price performance of the iShares PHLX Semiconductor ETF (SOXX)

StockCharts.com

Broadcom Inc. (AVGO)

As one of the top holdings of the SOXX ETF, Broadcom Inc. (AVGO) will likely be of specific interest to trend traders over the weeks ahead. Looking at the chart, you can see that the stock price has been trading within an ascending channel pattern and is showing few signs of reversing any time soon.

Based on the pattern, followers of technical analysis will most likely place stop-loss orders below the lower trendline to maximize the risk/reward. In addition, some traders may choose to buy near current levels in anticipation of a break beyond the resistance, which would mark the next stage of a long-term move higher.

Chart showing the share price performance of Broadcom Inc. (AVGO)

StockCharts.com

NVIDIA Corporation (NVDA)

Active traders will undoubtedly be following NVIDIA Corporation (NVDA), one of the world's leading semiconductor companies. Looking at the chart below, you can see that the stock price has been trading within a period of consolidation since September. The proximity to the support of the 200-day moving average suggests that a probability of a breakout is increasing.

Some traders may be deciding to buy now in anticipation of a move higher, while others will place buy stop orders above the nearby trendline. If the price closes above the upper trendline, then it would likely act as a catalyst to a strong move higher. From a risk-management perspective, stop-loss orders will most likely be placed below $500 or $460.55, depending on risk tolerance and outlook.

Chart showing the share price performance of NVIDIA Corporation (NVDA)

StockCharts.com

The Bottom Line

The semiconductor sector is currently facing a combination of strong fundamental factors such as shortages of supply and increasing demand, which is driving stock prices across the sector. For active traders, the nearby support and resistance levels are combining to create lucrative trading opportunities in what could be one of the dominant investment themes of 2021.

At the time of writing, the author did not own a position in any of the assets mentioned.