Chips are on a tear, and one Dow stock could be on its way back to recent highs

Chips stocks are ripping higher this year.

The SMH semiconductor ETF has added 19 percent in 2019, exiting a correction after a steep decline in the fourth quarter.

Todd Gordon, founder of TradingAnalysis.com, sees more gains for the group to come.

"The SMH has broken above the October, November, December levels just at about $96, $97, $98. We've broken above and we've come back to retest the support, and it looks like we're trying to get another head of steam here to move up," Gordon said Tuesday on CNBC's "Trading Nation."

The S&P 500, meanwhile, has struggled to break above its September record high and has found overhead resistance at around 2,800 to 2,820. Whether the chips can continue to rally depends on whether the S&P can break through that level, Gordon said.

"I think we're going to eventually chop through," he said. "What we have here is semis breaking that old late 2018 high where the S&P is about to, so we have a strong sector performing well in a potential breakout market."

One chip stock could be best positioned to ride that breakout wave, Gordon said.

"Intel has carved out a nice base here at the end of 2018, consolidated in the mid-$40s and is now getting on its horse ready to continue higher," he said. "I do see Intel moving up into the higher $50s — $57, $58 level."

Gordon is buying the April 18 52.50/57.50 call spread for roughly $1.97. This is a bullish bet that Intel will climb above $57.50 before the contract expiration.

Intel would need to rally more than 7 percent to get back above $57.50. It last traded at that level in June, its highest price since the dotcom bust.

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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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