Recently I have been shorting an equal dollar amount of SMH’s against a basket of Semiconductor stocks I believe will outperform the ETF/Index. This strategy has been working well but I have been getting killed in the SMH short. Today I actually decided to take a look at the Index and noticed that INTC and TXN make up roughly 40% . Once I realized I was basically shorting TXN and INTC I took a look into the overall technicals in the names and noticed that INTC is trading up into support and closed down 1% today while the SMH’s closed up 50 basis points.
Today at the close instead of hedging my book with only SMH’s, I shorted $22,000 dollars worth of SMH’s and $22,000 worth of INTC leaving my net exposure at $10,000 while also diversifying my short exposure.
Here’s Intel’s (NASDAQ:INTC) Weekly Chart:
- INTC is trading up into resistance of roughly $22.
- Resistance is both a downward trendline and the 61.8% retracement level off of the recent lows.
- INTC showed relative weakness today down 1% vs. SMH’s which closed up 50 basis points.
- My stop on this trade is somewhere North of $23.00 with a profit target of $16.50 which puts my reward/risk ratio at 5/1.5.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.