A Potential Tell as Chip Stocks Come Under Pressure

Chips stocks are down Tuesday, and that is weighing on the Pro Portfolio’s individual cap holdings and related ones in the EPS All-Stars basket.

Looking at the recent performance of the iShares Semiconductor ETF (SOXX), which counts Nvidia (NVDA), Micron (MU), Advanced Micro Devices (AMD), Broadcom (AVGO), and Intel (INTC) as its top-five holdings, collectively those stocks account for ~40% of the index that powers the ETF.

We’ve talked about the need to be mindful of the market mood, and the same applies to the market’s view on chip stocks, which as you can see in the chart above posted a sizable collective move between their late July bottom and Monday night’s market close.

We continue to see our individual chip stock holdings — Nvidia, Marvell (MRVL), and Broadcom — benefiting from AI and data center-related capex as well as the demand for networking equipment as AI adoption and usage expands. However, given current market dynamics, we will want to double check the fundamental and technical outlooks. Between Monday’s market close and Tuesday’s action, the SOXX rejected the 50-day moving average and that means we will want to see what comes next.

It’s possible some piece of news could lead to a quick reversal in the SOXX and other chip stocks. However, with questions over what’s likely to come next between the U.S. and Iran as well as inflation and rising Treasury yields, we could see the SOXX fade back to its 100-day moving average. Here too, we would want to see a successful test of that level to consider putting fresh capital to work.

While it may not be popular, this means that like our recent comments about Netflix (NFLX), the Global Robotics and Automation Index ETF (ROBO), and Builders First Source (BLDR) and Paccar (PCAR), we are in a holding pattern until a more favorable technical position develops.

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At the time of publication, TheStreet Pro Portfolio was long NVDA, MRVL, AVGO, MU, NFLX, ROBO, BLDR and PCAR.