Semiconductor stocks got crushed last week. The whole chip group fell about 11% from its high in a matter of days.
While that was happening, I had one of my most profitable stretches of the month.
If you were watching, you know the feeling. Every screen red, the names you follow gapping down, and the urge to close the laptop and wait it out.
A sector falling apart isn’t a reason to hide. It’s one of the cleanest setups there is.
When one piece of news drags a whole group down at once, everything moves the same way (and you don’t have to guess which name leads).
You can sit in cash and wait for green to come back, or you can get paid on the way down. I’d rather get paid.
You don’t need a margin account or a list of stocks to short. You need one ticker.
Broadcom Inc. (NASDAQ: AVGO) reported earnings last week. Its AI chip sales grew 143% to $10.8 billion, and it still wasn’t enough to satisfy the market.
The company didn’t raise its sales forecast for the year, and that was all it took. AVGO dropped about 13% the next day. By Friday the whole chip group was down about 9%, with Nvidia down 6%.
I wasn’t trying to figure out whether Nvidia or Micron would fall hardest. They were all going the same way, and one ticker let me trade the whole move.
My favorite chips ticker
There’s a tradeable fund that’s built to move with an entire sector instead of one company. The one I trade for chips is the Direxion Daily Semiconductor Bull 3X Shares (NYSEARCA: SOXL)
When chips have a good day, SOXL rises about three times as much as the chip group did. Its mirror, the Direxion Daily Semiconductor Bear 3X Shares (NYSEARCA: SOXS), runs the other way. When chips fall, SOXS rises about three times that drop.
So when I think chips are headed lower, I don’t have to pick between Nvidia, Micron, and whatever falls next. I buy SOXS, and that one ticker is short the whole group at once.
Sounds easy enough…right?
The thing with these leveraged ETFs is that the 3x cuts both ways. The same leverage that made me $98,462 can take an ugly loss out of you just as fast, and I get stopped out of these all the time.
The leverage is the whole point, but it’s also exactly what blows accounts up. A couple of weeks back, I shorted SOXL and got smoked.
A loss like that doesn’t sink me. I cut the losers quick so they stay small, and it only takes one trade (like the SOXL short) to pay for a whole stack of them.
How to actually trade it
These funds reset every day. That makes them good for a quick move that plays out over a few days. If you hold for weeks, it can bleed money even when the sector goes your way.
Figure out the most you can lose on the trade, and let that set how many shares you take.
I don’t buy in until the sector is already falling on heavy volume.
I set my stop so a bounce gets me out fast. The moment chips reclaim the level they just broke, the move is over and so is my trade. I take profits into the drop instead of holding out for the exact bottom.
And it works both ways. When the chip sector turns back up, I buy the bull fund, SOXL, and ride the group higher just as fast.
Green market or red, there are gains to be made.
Sometimes you just have to trade the sector instead of the stock.
Stay sharp,
Jack Kellogg
*Past performance does not indicate future results
