A great question from member @getitriight in the trading room on the SOXX (semiconductor ETF) swing trade which I figured that I’d repost here for those currently in the trade or considering taking a position soon.

Q: @rsotc Randy, if you expect a tradeable bounce in the markets, which will more than likely lift SOXX up as well, wouldn’t you cover the SOXX short somewhere here and re-short later?

A: An active trader might opt to do that & personally I covered my SOXX short, along with the last of my other shorts on Monday but I did not reverse it (i.e.- go long for a bounce), instead, I’m planning to re-short it soon. Officially, I’m leaving it on as an active short trade for several reasons:
– Many swing & trend traders are not full-time, active traders & aren’t nor should they be concerned with trying to game all the zigs & zags/rips & dips within a swing or trend trade.
– We have what I believe to be an excellent entry on that short trade which is quite likely to prove to be just 1 day & 1% off THE final top of the bull market in SOXX.
– Most importantly, despite the fact that the semis will likely catch a sympathy bid inline with the broad market, which by all means does not have to rally to a new high from here as per my potential scenario, the intermediate & long-term outlook for the semis is still bearish. Unlike some sectors & the broad markets that experienced a stick save back above key uptrend lines & support yesterday or Monday, SOXX, XSD & SMH have all remained below their well-defined price channels/primary uptrend lines & are backtesting them from below. (end reply)

Here are charts of the three main semiconductor ETFs that I follow, all of which are clearly below their primary uptrend lines following the recent breakdowns & divergent highs that indicate the recent drop was most likely the start of a much larger correction with more downside in the coming weeks to months, despite any near-term rally in sympathy with the broad market. In fact, this backtest offers an objective entry or add-on to a SOXX short or SOXS (3x short semiconductor ETF) long trade. click on the first chart to expand, then click on the right of each expanded chart to advance to the next image.

To add to that, each trader or investor should decide if, when & where to enter & exit a trade. The price targets, suggested stops & position sizes on the trade ideas are just that.. suggestions of where one might enter or exit a trade if they agree with the analysis. Active traders that agreed with my recent analysis that the market would bounce this week might have chosen to cover or even reverse the SOXX short trade. Also consider the fact that with volatility finally picking up for the first time in a long while, nearly all trades are likely to experience increased back & forth price swings, even within a larger bullish or bearish trend.

Active traders with the experience & confidence to game those micro rips & dips within a larger trend might opt to do so but for most, that is easier said than done. When swing trading or trend trading, one of the best strategies once you enter trade that you have make a solid case along with a trading plan that outlines where you will buy (or short) along with where you plan to book profits or cut your losses if the trade does not work out, most will find it best to set a OCO (one-cancels-the-other aka OCA, one-cancels-another) order with a limit order to close the trade at your profit target along with a stop-loss order to close the position if your stop is hit and then sit back & let the position ride without second guessing every counter-trend move in the position or the broad market unless the technical outlook for the position has clearly changed.