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Semis slump, but one trader is betting on a breakout

VIDEO5:0005:00
Semi stocks are under pressure, but one trader is betting on upside

Semis are breaking down again Wednesday.

The SMH semiconductor ETF was down more than 1%, adding to the 3% decline in the past week, as recession fears grip Wall Street.

Todd Gordon, founder of TradingAnalysis.com, sees a light at the end of the tunnel. He said a constructive set-up for the QQQ Nasdaq 100 ETF portends a market breakout.

"In the last six months or so, we're seeing a period of consolidation which has lower highs, higher lows. At some point, the indecision will come to an end. And usually, the trend that was in place prior to the consolidation will continue, and that should push us out of consolidation," Gordon told CNBC's "Trading Nation" on Tuesday.

A similar set-up is being viewed with the SMH semiconductor ETF, he said.

"You're actually going to see a little bit more strength in the semis as we keep pushing up against that upper resistance ceiling right around the $122 mark so once we get consolidation broken, coming to a completion, ready to move higher, I think the semis are well positioned to lead us out of there," said Gordon.

The SMH ETF needs to rally 5% to reach $122. It last traded above that level Sept. 19.

To capture an upside move in the SMH ETF, Gordon is purchasing the Nov 132/122 call spread for $3.00. This trade makes money if the semiconductor ETF breaks above $125 with maximum gains up to $132 — or up 11% from its current levels — by November expiration.

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