Wall Street Couldn’t Stop Talking About Semiconductors. Now It Can’t Stop Warning About Them.
From bullish earnings charts to head-and-shoulders top predictions, the narrative around chip stocks has flipped fast. The data may be telling a different story.
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You know that old line from Ernest Hemingway, about going bankrupt: gradually and then all at once? Sometimes sentiment is not much different. Folks are complacent even while a market falls, and then one day the complacency is gone and boom! They are bearish as can be.
I often cite this by noting sentiment rarely sees bulls jump to the bear camp or bears jump to the bull camp. They tend to mosey over to the fence, see what the other is doing. Some jump over the fence. Some stay. But then all of a sudden, it seems everyone has jumped the fence. It feels like that happened with the semiconductors on Monday.
The SOX has been in a downtrend since early July. That was right after it made that lower high. That was right after Western Digital (WDC) had that parabolic move, gapping up daily, and then it finally reversed the third week of June.
I’m not sure exactly what triggered all the bearish chatter on the SOX on Monday. Well, I can speculate that it was because the semis got sold out of the gate. All of a sudden, no one wanted to bottom fish these names. All of a sudden, it seems we went from all those charts back in May that showed the SOX is a gazillion standard deviations above its 50-day moving average line and how earnings for the semis are exploding, and even stocks like Analog Devices and Texas Instruments were surging, to charts that show zero components of the SOX are trading over their 50-day moving average line.
All of a sudden, the strategist who is a former semiconductor analyst and liked the semis a month ago, now likes energy. I can’t make this up.
All of a sudden, my inbox is filled with charts showing the SOX going lower using cycles, using the head and shoulders top, and using moving average lines. You name it, if there is a bearish way to present the semis, it crossed my desk on Monday. It’s not the exact inverse of May, but it’s starting to feel that way.
Yes, I know that is all anecdotal, so let me state some facts and data. The SOX did not make a lower low. You need to squint really hard to see it, but relative to that spike low on July 17th, Monday’s low did not break it.
The KOSPI, the Korean stock market, which everyone was quoting just a few weeks ago, is still desperately holding over 6500. Sure, that might have changed by the time you read this, but thus far, 6500 has held.
And then there is the SMH, an ETF to be long the semis. It doesn’t look good, but take your eyes off the price part of the chart and look at the volume in SMH on Monday. That’s a three-year chart, so the volume is the highest in at least 3 years.
I have been waiting for a high-volume day in the QQQs, but it seems to have arrived in the newly hated Semi group.
I am a terrible trend player. But I also know that the SOX is getting oversold and folks are now firmly cautious and/or bearish on the group. That typically means a rally is in order, and I think it arrives this week.
