Let’s walk through a sector that defies the market

Favorite Stock Picks that Defy the Market

Here we are at the start of another trading week. Today I’m going to walk you through what trading a certain sector looks like. We’re going to talk about Phoenixes (I explain what those are in a second).

My goal today is 3 fold:

1. Break apart a Phoenix

2. Get you thinking about future stocks with your own application

3. Let you know that you can join my classes to learn more

Let’s dive in, after the broad market sell-off in December, certain sectors and stocks emerged from the ashes the quickest, with the most strength (these are what I call, Phoenixes).

It’s these names that I believe to be both long-term stock buys as well as potential options trades on a shorter term basis to the long side. These means you can play them as longer term investments while simultaneously playing their options with a much quicker turnaround. Phoenixes also show their strength during earnings — and quality reports in this current market environment will propel them even higher. The market was hit broadly by the sell-off in December, but identifying the names that are fundamentally and technically sound, is the way the trader wins.

In particular, I like the semiconductors (SMH for the ETF), discretionary stocks (XLY for the ETF), and cloud based stocks. Why?

The ‘China impact’ has hit the semiconductor sector hardest, sending SMH and the majority of its holdings lower. Therefore, this sector stands to benefit the most from a resolution with China. Not only that, but the fundamentals and industry as a whole are strong. Semiconductors are in constant growing demand, and have a lot of growth potential.

As far as which ones, personally I’m still holding AMD. Even though it took a hit today, I’m not flustered.

CEO Lisa Sue has made impactful changes in both the business space and technology AMD uses, and will surely outshine INTC. While INTC holds more market share, AMD produces a cheaper, yet equal quality product, and their investments in R&D are paying off. At the current price point, it’s a great bargain.

After blow-out reports from XLNX and LRCX last Wednesday, January 23rd, on Thursday, INTC traded higher by 4% the day prior to their report.

Why did this happen?

Investors saw positive reports from other stocks in the semiconductor space, and erroneously assumed that Intel would blow out earnings as well, so they started buying it in mass. However, I’ll have you know, typically when a stock trades up 4% the day of their earnings report, the company needs a blow out report to sustain these prices. Anything less than amazing won’t do. And perfection, was something it couldn’t do. This is why you saw INTC get hit after its earnings report (in addition to the fact that it missed estimates).

INTC Daily Chart

What does this all mean?

The days of simply picking a sector and sticking with it long-term are over. Picking the strongest names in the bunch is critical if you want to make money.

How do we identify the strongest?

You could tell XLNX was strong even before earnings, as the selling that hit it in December was nominal, and it quickly climbed when the market rallied.

XLNX Daily Chart

This quarter is ALL about earnings and making the strongest selections. Anything less than amazing, will surely be punished.

XLNX and AMD are my favorites. LRCX is close behind, but the momentum from the report yesterday needs to continue. Last week, I day traded XLNX and LRCX higher on the momentum but the key here is if they maintain that pressure. I also like AVGO in this space.

Overall, the semis and SMH look like great long term stock picks to me. Just make sure you pick the best in breed (fundamentals plus technicals) and the Phoenixes (the ones that rose from the ashes first after the December sell-off).

SMH — Semiconductor Phoenix Finder Comparison — Daily Chart

Here is a quick preview of my new tool, the Phoenix Finder. It helps me identify which stocks are strongest in the bunch. In this case, it’s XLNX and AVGO. You can see this new tool in action in my upcoming class and webinar (those will be in the next few weeks, and you’ll be able to sign up soon — so pay attention).

Of course, there are other sectors that have potential right now, but I’ll get to those another time.

So don’t worry about overloading yourself with trying to retain every bit of information there is out there.

The best traders aren’t always the ones who have their hands in 30 different pots. Focus on one particular aspect, or area, or style of trading… become a master there… and then expand to others.

Let’s make a promise ok?

I’ll continue to guide you through my daily trading life, breaking down macro analysis, and providing you with trading ideas. But you have to make sure you don’t bite off more than you can chew.

Becoming a professional trader is a marathon, not a sprint… and I want to run it side-by-side with you.