Semiconductor stocks, given their early cyclical nature, are a bunch that I watch closely for clues to the broader tape. After a major drop in the early part of the century thanks to the pop of the internet bubble and the commoditization of computer chips, semiconductor stocks as a group had a much more random going. Looking at the Market Vectors Semiconductor ETF (SMH) as a proxy to the group, the lower low in late 2008 (versus the 2002 low) led to a meaningful rally into present day. After a multi-year incline, SMH managed to push past a significant resistance line earlier this year. Thus, through this multi-year lens, the semiconductors look to be fine.
What’s more concerning to the bull camp here, however, is the near-term outlook for the group. After completing a failed higher high in July, SMH trickled lower and last week, much like the broader market, snapped below near-term support. The SMH did, however, find a resting spot for the weekend at the 100 day simple moving average as well as the defined up-trend line dating back to November 2012. While in the immediate term an oversold bounce is most certainly possible, any eventual break below the November 2012 up-trend line could quickly bring about a series of new sellers.
The 200 day simple moving average (red line), currently near the $35-$50 area, is an interesting next reference area on the downside. On the upside, a push past $38.50 may quickly bring the bulls back from the stable and push the bears away from the table.