Semiconductor stocks have come back to life lately, after falling more than 17%. The Daily Breakdown looks for an opportunity.
Tuesday’s TLDR
- Bitcoin and Ethereum snap winning streak.
- Palantir, Disney earnings are in focus.
- Semiconductor ETF hits highest level since April 15.
What’s happening?
The S&P 500 rallied 1%, the Nasdaq 100 jumped 1.1%, and the Russell 2000 climbed 1.2%. It was a strong Monday across the board, with stocks finishing near session highs.
However, it didn’t help that Bitcoin and Ethereum struggled on the day, slipping 1.3% and 2.4% in the session, respectively. That weakness seemed to stem from Robinhood’s crypto division receiving a Wells Notice from the SEC.
A Wells Notice is a letter to a company or person from the SEC at the end of an investigation that states it’s planning to bring an enforcement action against them.
This seemed to rattle crypto investors, snapping the win streaks for both Bitcoin and ETH. I want to see how they handle yesterday’s bump in the road. More specifically, I want to see if they can shake off the news and continue higher.
It was a good start to the week for stocks in what’s expected to be a rather quiet week. Can crypto make it a good week for its group, too?
On the earnings front, a number of companies report today. The ones that stick out to me before the open are Disney, Crocs, Datadog, and Celsius Holdings. Rivian, Wynn Resorts, and Lyft will report after the close.
Want to receive these insights straight to your inbox?
The setup — SMH
Nvidia and Advanced Micro Devices were the No. 2 and No. 3 top performers in the S&P 100 on Monday, helping drive the VanEck Semiconductor ETF — the SMH — to its highest level since April 15.
SMH is one of the most actively traded semiconductor ETFs. With Monday’s 2.3% rally, it was able to clear the 50-day moving average and downtrend resistance:
In the short term, bulls can maintain momentum so long as the above argument remains true — that it stays above the 50-day and downtrend resistance.
Longer term, investors will want to see SMH hold above the $215 to $220 zone. On the flip side, a move below $215 could accelerate the selling pressure.
Keep in mind, Nvidia — the top weighting in the ETF — reports earnings in a few weeks.
Options
Options could be an alternative for investors who want exposure to semiconductors, but are nervous to get long the ETF. Remember the risk for options buyers is tied to the premium paid for the option — and losing the premium is the full risk.
Bulls can utilize calls or call spreads to speculate on further upside, while bears can use puts or put spreads to speculate on the gains fizzling out and the ETF rolling over.
For those looking to learn more about options, consider visiting the eToro Academy.
What Wall Street is watching
SPY — Companies have reported their strongest earnings season in nearly two years (since Q2 2022), revitalizing stock markets despite ongoing inflation concerns and interest rate uncertainties. The S&P 500 has seen a notable 5% growth in Q1 earnings so far, surpassing analysts’ expectations.
OIL — Oil has been volatile. Prices rose as Saudi Arabia increased June crude prices and tensions in Gaza escalated, then gains were trimmed after Hamas accepted a ceasefire proposal by Qatar and Egypt, reducing the geopolitical risk premium in crude prices.
PLTR — Shares of Palantir rallied on Monday ahead of its earnings report after the close. Revenue of $634.3 million grew 20.8% year over year and beat analysts’ estimates, while earnings of 8 cents a share were in-line with expectations. Although the company raised its full-year outlook, the stock is still down in premarket trading.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.