There’s a huge divide in the semiconductor space. Here’s how to play it

There's a great divide in the semiconductor space this month.

As Advanced Micro Devices has surged to the top of the technology sector, Applied Materials has sunk to the bottom.

"This is a great example of the dispersion and the mixed trends that are occurring in the semi and semi equipment industry," Ari Wald, head of technical analysis at Oppenheimer, told CNBC's "Trading Nation" on Monday.

Advanced Micro Devices was pulling back on Tuesday, though it still has easily topped the S&P 500 and tech sector so far this year. The semis stock has also surged 37 percent in August alone. Applied Materials, meanwhile, has dropped 11 percent this month in what could be its worst performance since April 2015.

Wald expects that divergence to continue.

AMD "has had a terrific run," Wald said. "Our strategy is based on letting your winners run, and this is a winner, so if you're in the stock there's nothing to do. Very little resistance to point to until this stock gets back to $40."

AMD last traded above $40 in early 2006. It had a more extended stretch during its highs of the dotcom bubble in mid-2000.

"Applied Materials, on the other hand, had already rallied to its 2000 high last year. Now it's getting turned lower here. The trend is broken," he explained. "If the market continues to be strong, which we think it does, I think there's a floor here, but if the market were proved wrong there I think there is additional downside risk given the broken trend. So stay away from that one."

Applied Materials broke above its 2000 highs late last year and added to those gains in early 2018. It last hit an all-time high of $62.40 a share in March this year. It has dropped 31 percent since then.

Michael Bapis, managing director of The Bapis Group at HighTower Advisors, says the surge in AMD has become overdone and he expects the tide to turn on these two names.

"AMD needs to take a break. It's been a three-bagger since April, and so we're recommending you swap out of AMD and into AMAT," Bapis said on "Trading Nation" on Monday. "We think over the next 12 to 18 months you'll be way better off in AMAT than you will in AMD.

Chips stocks declined on Tuesday. AMD fell more than 4 percent, and Applied Materials dropped more than 1 percent. The SOXX semiconductor ETF was also lower.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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