How Long Can Semiconductors Lead the Stock Market?

nasdaq s&p 500 relative strength ratio chart

With Jerome Powell so data dependent as he stated on his second and last day of testimony, it seems pretty obvious where most of the growth and labor strength is coming from.

Not the first time we have seen semiconductors lead the market, we can say, historically, it has not ended well if the rest of the Economic Modern Family cannot keep up.

Tech’s relative premium compared to the S&P 500 is nearing its pandemic bubble peak. 

This is in an environment though, a bit different than late 2021. We now have much higher interest rates, and slower economic growth.

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And that is both the good news and bad news.

With AI and chip stocks so obviously outperforming the SPY and the rest of the Economic Modern Family, you have to wonder-

Delusional response, or like Wonder Woman herself, impervious to the barbs of rates, GDP, geopolitics and sentiment?

smh semiconductors etf trading at important resistance moving average chart month march

Of all the sectors in the Modern Family, SMH is indeed the strongest. 

Our “Sister” SMH sits right below the 23-month or 2-year business cycle.

Why is this significant? 

In 2021 we saw a major bull market. In 2022, we had a major bear market. 

Is it any wonder that 2023 remains the what’s up year to date?

Yet it is also the reason we are watching SMH so carefully. 

If SMH fails to take out the 23-month and begins to decline from here, clearly the weakness of Regional Banks (KRE) and Retail (XRT) has come home to roost.

Conversely, should SMH clear and close by month’s end the 23-month moving average, then it tells us 2 things.

Stock Market ETFs Trading Analysis & Summary:

S&P 500 (SPY) 390 support with 405 pivotal 410 resistance 

Russell 2000 (IWM) 190 resistance -185 support 

Dow (DIA) 326 support 335 resistance

Nasdaq (QQQ) 284 big support 300 pivotal 305 resistance  

Regional banks (KRE) 57 big support 60 resistance 

Semiconductors (SMH) 240 pivotal 248 key resistance

Transportation (IYT) 240 resistance and 230 support

Biotechnology (IBB) 125-135 trading range 

Retail (XRT) 66 pivotal with 64 key support

Twitter: @marketminute

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