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'This is the stock to own' as semis snap back, technical analyst says

Stay with chip stocks long term, but watch exposure now: Investing pro

Chip stocks are making a comeback.

The SMH semiconductor ETF, which tracks the biggest names in the space, gained nearly 3% during Tuesday's session, snapping six-straight days of losses and avoiding what would have been its longest daily losing streak since January 2016.

But it's not a buy-them-all situation for Ari Wald, head of technical analysis at Oppenheimer. He believes investors should be selective and look to buy the names that have outperformed.

He's specifically watching Broadcom. The stock is not only up nearly 20% for the year, but it also managed to post a 3% gain in the fourth quarter of 2018 while the rest of the market fell off a cliff. By comparison, the SMH lost 18% in the fourth quarter of 2018.

"Here's a stock that made a higher low while the rest of the market was in free-fall in December," Wald said Tuesday on CNBC's "Trading Nation." "It broke out ahead of the market. You can see the 200-day starting to turn higher. Former resistance at 285 is now support. This is the stock to own," he said. The stock closed at $302 a share on Tuesday.

Looking at the SOXX Philadelphia semiconductor index, Wald argues that the chart is compelling since it has "worked off these overbought conditions" from the April peak, and that it has corrected "into its prior breakout point from 2018 resistance." Typically what was once resistance becomes support, so he believes the trade will stabilize at this level.

Like Wald, Chantico Global's Gina Sanchez believes the chip trade has stabilized and that macro tailwinds mean the space is set for gains in the second half of the year.

"The semi cycle is already starting to bottom out, and we're expecting to see a second half bounce ... in demand for semiconductors. And the really big, broad, 5G kind of big macro cycles, those are still intact," she said.

While she cautions that in the short term, buyers should be "careful about how much exposure you have directly to China sales and China revenues" when thinking about getting in the chip trade, the "long-term outlook for semis still looks positive."

From January through much of April, the SMH soared 40% and hit an all-time high on April 24. But since then, trade war concerns have hit the space hard and the ETF has dropped more than 10%. Last week alone the SMH shed 6%, for its worst week of the year.