Buy the Dip on These 2 Tech ETFs Before Thanksgiving

Subscribers to Chart of the Week received this commentary on Sunday, November 9.

This past week Wall Street saw another tech rout, as AI valuation concerns dominant earnings calls. This overdue tech reckoning may be daunting to investors that have grown accustomed to parabolic stock moves. The antidote is out there though, a tried-and-true component of Schaeffer’s Expectational Analysis; chart support combined with bullish seasonality.

Per data from Schaeffer’s Senior Quantitative Analyst Rocky White, two high-profile tech ETFs have bullish seasonality that could, with some patience, fend off valuation headwinds. There’s also chart support to consider, and a massive known event that could right the ship quickly.

The VanEck Semiconductor ETF (SMH), leads the way, sporting an average 8% jump in the month of November over the last decade to go with a 90%-win rate. The ETF has three weeks to dig out of its 5.6% monthly deficit, but despite the drawdown, remains only 7.2% off its Oct. 29 record high of $372.78 and has support in place at its 40-day moving average. Since the start of January, SMH has added 39%.

Put traders have been a steady presence in recent months. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SMH sports a 50-day put/call volume ratio of 1.81, so almost two puts have been purchased for every call over the last 10 weeks.

Technology Select Sector SPDR Fund (XLK) sports a 5% average return and 80%-win rate for the month of November. In a similar technical setup to SMH, XLK has pulled back to its 50-day moving average, a trendline that hasn’t been breached on a closing basis since May. From its current perch, a 5% jump would put XLK fill its monthly drawdown and put the ETF back above the round-number $300 mark, a chip shot from its Oct. 29 record high of $305.99.

Options are looking affordable for both ETFs too. This is per VanEck Semiconductor ETF’s Schaeffer’s Volatility Index (SVI) of 38%, which ranks in the low 20th percentile of its annual range, and XLK’s SVI Of 26%, which ranks in the 17th annual percentile.

There’s a $4.50 trillion dollar elephant in the room. Beyond their technical setups, both SMH and XLK have Nvidia (NVDA) as their largest holding, of 19% and 14%, respectively. Nvidia reports earnings after the close on Wednesday, Nov. 19. The options market is pricing in a larger-than-usual post-earnings move of 9.9% for Thursday’s trading. All it takes is a NVDA rising tide to lift both ETFs.

Of course, consumer sentiment and government shutdowns can throw a wrench in even the stoutest earnings report. The impasse in Washington D.C. leaves a larger-than-normal risk of the ‘known, unknowns’ as previously mentioned by Schaeffer’s Senior V.P. of Research Todd Salamone in Monday Morning Outlook, but buying the dip on a few historically bullish ETFs could be a route to consider amid the rut.