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More Downside Ahead for Semiconductors

SMH investors are in for a rough ride.

Key points to keep in mind:

  • The May-July rally from $97.61 climbed to a new all-time high at $122.93 on July 23, exceeding the April 2019 prior all-time high at 120.71 by 1.8%. But the SMH then reversed to the downside the very next day, entering a 13% decline into the first week of August.
  • The April vs. July highs leave behind a potentially MAJOR Double Top off of all-time highs.
  • The declining price structure has sent the 5 DMA into a sharp down-slope that currently is within a few cents of slicing beneath the 50 DMA, which will trigger a an infrequent, but meaningful 5 x 50 DMA Sell Signal. Notice on the attached chart the historical behavior of SMH after a 5 x 50 DMA negative cross over, designated by the turquoise boxes.
  • The intermediate-term Momentum Gauges are negatively positioned, and confirm the weakness in the SMH since the 7/23/19 all time high

Of course, everyone is aware that the SMH certainly could be one tweet or Kudlow comment away from a vicious upside reversal precipitated by the perception or the reality of a forthcoming trade deal with China that relieves or eliminates pressure and uncertainty in the semiconductor space.

That said, however, if the technical set-up is providing hints about the nearer term direction of the SMH, then the overwhelming likelihood is for downside continuation that revisits the Dec-Aug support line and the 200 DMA in the vicinity of $106 down to $103 in the days directly ahead.

Mike Paulenoff is a veteran technical strategist and financial author, and host of, a live trading room of his market analysis and stock trading alerts. Sign Up for a Free 15-Day Trial to Mike’s Live Trading Room!

Equities Contributor: Mike Paulenoff

Source: Equities News

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