The dip buyers jumped in and quickly bought opening weakness this morning. This sort of buying has occurred so often and so automatically you have to wonder when it will end but for now it seems to be a self-fulling prophecy and feeds on itself once it begins.
The S&P 500 is now trading flat on the day after being down substantially in the premarket. Breadth is lagging with about 2500 gainers to 4000 decliners which tells us that this is index driven action more than individual stock buying action. FAANG stocks are acting better and Apple (AAPL) has bounced back after a rough day.
I'm doing a little nibbling of some things like my biotechnology favorite Zogenix (ZGNX) and a small oil TransGlobe Energy (TGA) . I'm not an aggressive buyer right now but there are a few things I am interested in building with a longer term view.
One of the most interesting groups in the market right now is semiconductors. Experienced traders are always a little uncomfortable when semiconductors are leading the market as the sector has a reputation as being late cycle leaders. I'm not sure how much statistical proof there is for that thesis but when chips are leading there usually is some concern that a top is near.
However, what is most interesting about chips stocks is that there is very mixed action within the group. Both Micron (MU) and Intel (INTC) are doing poorly but Advanced Micro Devices (AMD) has made a very strong move lately. AMD has probably benefited from rotation with the chip group by those that want exposure to semiconductors in general but don't want to hold the laggard names like Intel and Micron.
AMD hit a 12-year high this morning but reversed as traders take some gains into the euphoria. The stock received a $40 target this morning from boutique firm Rosenblatt. That analyst compares the product trajectory to that of Nvidia (NVDA) several years ago when it came to dominate the graphic chip niche.
AMD clearly has momentum and that always creates strong underlying support. There will be aggressive dip buyers looking to buy pullbacks to $28 and $26.
The AMD skeptics will point out that the stock is quite pricey especially for the chip sector which tends to be cyclical. AMD currently trades with a trailing P/E of 83 but is expected to earn $0.65 in 2019 which is only 38% EPS growth. Momentum buyers count on earnings estimates coming up over time so they aren't going to worry too much about that valuation at this point.
Fund managers that want exposure to semiconductors have to decide if they want to own the leaders or the laggards in the group. Most will prefer the leaders and that is what is going to help AMD to continue to trend higher.