[Charts] Stock Bargains, Sentiment and Semiconductors

Lou Basenese

Friday, September 17, 2021

It’s Friday in the Trend Trader Daily Nation...

That means it’s time to add some excitement to our usual word-based investment analyses by ushering in a handful of charts.

If nothing else, charts make it a whole lot faster to digest new information, make some investments — and then get on with the weekend!

With that in mind, today I’m featuring:

  • The mouthwatering declines in smaller stocks. (Don’t miss out on the bargains!)
  • The most contrarian (and reliable) “buy” signal ever.
  • And last but not least, the only investment every investor needs to own right now.

So let’s get to it...

How Low Can Stocks Go?

Although the major stock market indexes keep flirting with new highs, the pundits can’t help but raise red flags.

They say that an increasing (and alarming) number of stocks in the S&P 500 index are actually declining.

Exhibit A: CFRA’s Chief investment Strategist, Sam Stovall, who wrote to clients this week saying, “For the last several months, most stocks have declined more frequently than they have advanced - evidence of a weakening market condition.”

I beg to differ. This simply signifies a healthy market consolidation before the next leg higher.

In other words, it’s another “buy the dip” opportunity — particularly in smaller stocks, as a greater percentage of them have pulled back.

Take a look:

Mind you, I’m not alone in this thinking...

For example, Big Pharma definitely agrees, as they’ve been pouncing on the sell-off in smaller biotech companies, announcing takeovers at ridiculously high premiums.

It might do us all some good to follow suit...

Just sayin’ (once again): Keep buying small- and micro-cap stocks!

Sentiment Survey Says?!

For decades, academics have been trying to convince us that psychology has nothing to do with investing. That the market is perfectly efficient and perfectly rational.

That’s baloney!

In fact, an increasing number of market participants have seen the light — they’ve recognized that sentiment and psychology do matter.

The funny thing? Typically, the smartest investing move is to do the opposite of what everyone else is doing.

Or as Humphrey B. Neil put it, “When everyone thinks alike, everyone is likely to be wrong.”

Why bring this up? Because the American Association of Individual Investors (AAII) bullish sentiment reading just plummeted to 22.4%.

Two weeks ago, it hit a high of 43.4%.

With so many investors suddenly turning bearish, we’d be wise to get bullish.

In fact, the AAII sentiment survey is one of the most reliable contrarian indicators that I track.

I’ll share more details and data next week.

But for now, just trust me… and buy stocks!

How High Can Chip Stocks Go?

If you’re reluctant to follow me blindly, then stick to buying what’s (still) working: semiconductors!

As I told Fox Business’ Maria Bartiromo earlier this week (see here), it’s the most  important sector in the market. Period.

And every investor needs exposure to chip stocks in their portfolio.

Forget rehashing all the fundamentals that are propelling the chip sector higher (go here if you need a refresher). Just look at the trend:

The VanEck Vectors Semiconductor ETF (SMH) hit a new record high yesterday, finishing in positive territory for the sixth consecutive day.

What’s more, the chip sector has only traded lower four times in the last 20 trading days.

If the trend is our friend (and it is here), keep following it!

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Ahead of the tape,
Lou Basenese
Lou Basenese

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