Hello members!
Welcome to the first edition of the Tischendorf Letter Premium.
As stated in the about section on my free website, my goal has always been to help you understand the markets and help you become a better trader. This is exactly what I will continue to do going forward. 2016 will mark the beginning of my 18th year of trading the markets. Running a premium service is the best and most effective way for me to pass on my experience. This will allow me to spend more of my time doing what I love to do. It also ensures that for years to come my time is spent with traders who are highly motivated, have a strong desire to learn and are willing to put in the necessary effort.
It goes without saying that it will take some time to improve the purely technical aspects of the premium website. Over time the format will constantly improve and new content & features that add value will be tested along the way. There are a lot of possibilities that come to mind: Audio Market Recaps, Video Lessons, Live Streaming, Video Q&A sessions and the list goes on. In order to implement all this, the site will need to grow first. So for now, I will stick to producing the weekly letter and occasional blog posts.
Again, my job is not to write poetry, my job is to make sure you learn what it takes to become a better trader. I will teach you how to fish. I will show you how I do it. I’ll write about what I see happening in the markets and what it means in terms of how to best position oneself. The goal is to both profit from what the market has to offer and at the same time to protect precious capital.
Here’s a quote from Goethe I used in the past that best describes what success is all about:
Knowing is not enough – we must apply.
Willing is not enough – we must do.
– Johann Wolfgang von Goethe
Keep this in mind going forward. Building up your knowledge and having a willingness to learn and trade well is a prerequisite for success. But it is not enough. You have to actively and intentionally apply and do what you know and want to do. I will do my best to constantly remind you of that and do whatever it takes to help you to apply and do. When all is said and done though, it is up to you to actually do.
The main theme of this week’s issue: Semiconductors vs. Biotech
The current strength in the market is undeniable. So how do we best play it going forward? We have by far the strongest seasonal period ahead of us. Odds are simply in favor of those with long exposure in the right sectors. What we have seen so far is a lot of sector rotation and at the same time leadership getting thinner by the day. At times it seems all the money is flowing into the megacaps like AMZN, GOOGL and FB.
The last few days though, I have noticed 2 things that have started to change:
- Small caps have started to outperform
- Semiconductors are starting to develop leadership
This of course is still early days, but until recently Biotech was the undisputed leader. On Twitter I recently posted the following chart of IDTI – Integrated Device Technologies a strong semiconductor stock with incredible monthly pattern pressure.
Click on chart to enlarge:
The point I am trying to make here is that buying into IDTI sure felt like chasing. In plain English: It was, and still is, extremely hard to buy into this potentially winning stock. That being said, I do not advocate chasing and it is still too early to tell if IDTI will indeed develop into a big winner. But the stock is slowly starting to show its hand. One of the most important questions I always want you to ask yourself is the following:
How does a stock treat those traders that are willing to chase it a bit?
Notice I didn’t speak of blindly chasing. Also, this is a question you should always ask yourself, no matter if you own the stock or not. It all comes down to the following: Asking the above question tells you what kind of traders own the stock, strong hands vs. weak hands or experienced traders vs. inexperienced traders, and it tells you about their willingness to either add more to their position, hold or sell. In plain English: This is a prime example on how to analyze and gauge strength. Does a stock reward or punish aggressive entries?
Remember: The strongest stocks make it very difficult to enter. If they do allow for entries, the number of times you get perfect entries are few and far between and the window of opportunity usually closes very fast. This is a situation best described as buying ‘goods that are in demand’ as opposed to ‘buying damaged goods’ aka as buying stocks in downtrends hoping to get a bargain.
Two other semiconductor stocks I highlighted recently are CEVA – Ceva Inc. and TSEM – Tower Semiconductor. As you all know, I am spending a lot of time trying to figure out the story stock potential of specific stocks. If you have the right market environment, the right sector, strong stocks within that sector and big story stock potential capturing market participants imagination, this often leads to explosive moves.
Gauging Story Stock Potential: In a nutshell, here’s a quick description of the story stock potential I see with the following two stocks. These are just thoughts, this is not meant to be scientific in any shape or form:
IDTI: The wireless charging business is what most likely is driving the stock’s price. I see smartphones everywhere. I can easily see ubiquitous wireless charging developing into a huge market. IDTI could be the big winner.
CEVA: QCOM – Qualcomm has fallen out of favor. The stock has rolled over and won’t be a leader in the next up-cycle. Smartphones are not going away anytime soon. Some stocks will take market share away from QCOM. I have noticed that often times when QCOM really tanks it translates into a big up day with CEVA. Maybe something is brewing. I also like their involvement with cameras. This might have potential with regards to the self-driving cars theme.
Here’s one of my Semiconductor sector overview charts. This one contains the best and strongest semiconductor stocks the market has to offer right now. This is definitely a good pond to fish in:
Click on chart to enlarge:
Another thing to keep in mind when it comes to semiconductors is to monitor the right ETF. Most are focused on SMH which is skewing the picture as it has way too much exposure to a few stocks. INTC, TSM and QCOM make up 40% of the fund: http://www.vaneck.com/market-vectors/equity-etfs/smh/snapshot/
A much better way to gauge semiconductors is to use XSD which is a much more diversified ETF and better reflects the technical situation with semiconductors: https://www.spdrs.com/product/fund.seam?ticker=XSD Interestingly the biggest holding, now that PMCS got acquired, is, you guessed it, IDTI which makes up for 2.84% of the fund.
Click on chart to enlarge:
The last thing I want to point out is a chart depicting how the relative strength between Semiconductors and Biotech has now shifted in favor of semiconductors. IBB was the former leader. Now it looks like Semiconductors are likely to assume that role. The good news is that single stock risk with semiconductors is much lower as opposed to buying individual Biotech charts which can literally get destroyed overnight on bad news. Semiconductor stocks make it a lot easier to trade aggressively and have meaningful long exposure.
Click on chart to enlarge:
The most intriguing sector besides Semiconductors is Software. You probably noticed I mentioned quite a few individual software charts over the past weeks on Twitter. It has even less Overhead Resistance (Must read article on my free website touching upon that subject) and might be the true leader. IGV is the ETF you want to monitor and add to your watch list. I’ll probably write more about Software soon. Either during the week highlighting individual stocks or in an upcoming weekly issue. Stay tuned.
High Potential Stocks:
HQY – Healthequity, CALD – Callidus Software, LMAT – LeMaitre Vascular, UUP – US Dollar ETF
Conclusion: Until proven otherwise we are still in a bull market.
Quote & Food for thought: A comfort zone is a beautiful place, but nothing ever grows there.
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