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Semiconductor Stocks Feeling Heavy

Watch for a break below these two support levels to confirm a bearish move


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.

smh weekly

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.



 Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here.

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