Coming from the industry in my prior life, semiconductor stocks have always been a sector I follow closely. Their heath is a good proxy and gauge of investor’s willingness to take risk. The semiconductor ETF, SMH peaked after its parabolic run-up during the dotcom boom, the same boom that turned into a bust laying waste to pets.com, webvan.com and etoys.com (RIP). SMH finally bottomed during the 08 –’09 financial crises, losing more than 85% of its value from the highs. In 2015 during the markets one year consolidation, SMH formed a huge base (under the red horizontal) from which to launch higher. That huge cup and handle pattern has a target around the $100 level (the blue horizontal line), which just so happen to be where it reached this week and back 18 years ago.
With price sitting well above its 200 day moving average and massively overbought, it needs a rest. As such I would expect to see consolidation (or dare I say even a pullback) in the upcoming days/weeks before it shows its hand on whether this prior resistance level will put throw cold water on the current rally-to-the-moon party. In an ideal world, price would slice right through that critical area of resistance and not look back and the path of least resistance considering the strength of this market.