SMTC stuck in a wide range

Semtech Corporation and its subsidiaries design, develop, manufacture, and market analog and mixed signal semiconductor products. Its products lines include signal integrity and timing products, such as a portfolio of optical communications, broadcast video, active cable transceiver, and backplane products used in various enterprise computing, industrial, communications, and high-end consumer applications; and proprietary advanced wired communication and ultra-high speed serializer/deserializer products for optical transport communication used in various communications and industrial applications.

Take a look at the 1-year chart of Semtech (Nasdaq: SMTC) below with added notations:

SMTC has been trading in a large, sideways range for the last 10 months, while forming a common pattern known as a rectangle. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. SMTC’s rectangle pattern has formed a $28 resistance (red) and a $22 support (purple). At some point the stock will have to break one way or the other.

The Tale of the Tape: SMTC is trading within a rectangle pattern. The possible long positions on the stock would be either on a pullback to $22, or on a breakout above $28. Short opportunities would be on a rally up to $28, or on a break below $22.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

@cmtstockcoach