The Market Vectors Semiconductor ETF (NYSE: SMH) was up another 0.7 percent Monday, extending the winning streak to three weeks. The last time the ETF finished the day in the red was on May 20.
The rally has taken the ETF to the best level in over 14 years, and it is up 13 percent for 2014.
The winning streak has been fueled by a breakout in its top holding, Intel (NASDAQ: INTC). Since May 20 Intel is up 8.5 percent and is trading at the best level in two years. Intel makes up 19 percent of the ETF's allocation.
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The second largest holding at a 13 percent allocation is Taiwan Semiconductor Manufacturing (NYSE: TSM). The stock is up 22 percent this year and trading at the best level since 2000. When two stocks make up nearly one-third of an ETF, the ETF will tend to be heavily influenced by their performance. Both Intel and TSM have been market leaders and therefore SMH has been on a tear.
The smaller SPDR S&P Semiconductor ETF (NYSE: XSD) is also breaking out to new highs, though it does not boast a similar winning streak. The portfolio is very different than that of SMH as Intel is not in the top ten holding list. The largest holding is OmniVision Technologies (NASDAQ: OVTI) at 2.8 percent.
Both ETFs are now sitting at extremely overbought levels based on a variety of technical indicators, which should not be a surprise considering the rally that both have enjoyed. The long-term outlook for the industry looks bullish, however buying today may not be the best strategy. Nothing goes straight up and a healthy pullback is overdue.
A pullback on light to average volume that remains under 5 percent could offer patient investors an opportunity to buy at a lower price in the weeks ahead. One trait that nearly every successful long-term investor has is patience when it comes to buying and selling in the market.
- ETF Outlook For Wednesday, June 4, 2014 (BJK, SMH, FAN, GLD, INTC)
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- ETF Outlook For Wednesday, April 16, 2014 (SMH, IAT, XBI, EWS, INTC, USB)
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