Beware of Semiconductor Stocks Bearing Gifts

Michele Schneider

October has begun as a choppy, volatile and news-driven month for the stock market in its short history of one week.

Actually, I use the word “news” loosely. Think tweet-driven.

The leader of our “Economic Modern Family” of ETFs and the overall stock market has been the Semiconductors (NYSEARCA: SMH).

After the big decline at the end of 2018, the Semiconductors ETF (SMH) was one of the first sectors to retake the key moving averages on the daily chart.

Since then, with the shallower decline in May and then again in August, SMH has hung tough in a bulish phase in all timeframes.

To date, SMH has traded as high as 123.56 in July.

With three weeks left in the notoriously scary month of October, is SMH offering us flowers, but with poison thorns?

I want to focus on Semiconductors today because of the sector’s strength.

Looking at the chart, the phase is decidedly bullish. That’s the roses part.

Now, look at the rallies since then.

semiconductors etc smh price analysis stock market chart october 7

Each peak price is lower than the one before.

One could also say that the bottom-most lows are also higher since December.

And that would be true.

So, why do I choose the notion of our sister in a more demonic way?

On the longer-term charts, there is the potential for a triple top.

And it’s October.

And, SMH’s brethren remain way weaker (Transportation and the Russells are in bearish phases).

For actionable information, should SMH break under 118, that is a minor breakdown.

A move under 115 is a major breakdown. Not only does that break the higher lows pattern, it also breaks the 50-DMA and very likely the spine of our dear sister.

The only way the current bias changes, is if SMH makes a new all-time high. Anything is possible.

So before you stick your nose in the roses of the tech sector, watch out you do not get pricked.

S&P 500 (SPY) Went back into an unconfirmed caution phase with 293.84 pivotal and 290 some support. 

Russell 2000 (IWM) Rallied right to the 10-DMA resistance and failed. Now, 146 is the key support

Dow Jones Industrials (DIA) Back to an unconfirmed caution phase. Makes 265 pivotal

Nasdaq (QQQ) 188.41 50-DMA did not hold so this too back to an unconfirmed caution phase. Support 185 

KRE (Regional Banks) Bearish phase-until that changes sell rallies.

SMH (Semiconductors) See commentary.

IYT (Transportation) Death cross today so that’s not so healthy. 175 the big support level.

IBB (Biotechnology) Could not hold 100-bearish phase.

XRT (Retail) 41.00 50-DMA pivotal.

Twitter: @marketminute

The author may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.