Weekend Update: New Special Situation Trade

Emergence of a New Special Situations Trade

Chinese Smartphone Sales Collapse In Biggest Decline Ever.

Doubts Grow At Apple That A $1,000 Smartphone May Not Have Been A Winning Idea.


Executive Summary

(1) Smartphone sales are smarting;
(2) Apple and Samsung are the world's two largest buyers of semiconductors;
(3) The Semiconductor Index (SOX/SOXX) is rolling over from a decade long bull market. SOXX has risen from $30 in 2008 to $195 in 2018. There is a lot of air below current SOXX pricing @ $170. 


Confirmatory Analysis

This is the perfect storm for Confirmatory Analysis: The marriage of fundamental and technical analysis to create a high probability trade, i.e,. two divergent approaches to market forecasting are coming to the same conclusion. Accordingly, we are Shorting the Semiconductor ETF (SOXX) in the Special Situations portfolio. Along with SOXX puts we are recommending a Bearish Semiconductor ETF (SOXS) that offers exceptional appreciation (3X leverage) without the nail biting associated with holding options during earnings season.  

The Trade

As per the SOXX trend model shown below, we are going Short SOXX, going Long either the Bearish ETF (SOXS), or Long SOXX Jun $170 puts. Note that a weekly SOXX close below $167.23 would be a break of the long term trend line that has already been tested three times (see second chart below). If that line is broken, double-up on the trade
Intermediate Term Sell Signal
Long Term Sell On A Weekly Close Below $167.23


Bearish Semiconductor ETF - A lot of room above




*TLT reversed Long on Friday, thus stopping out our TLT-Short Trade and turning the model Bullish. We are buying the TLT July $119 Calls.