Facebook
Twitter
The overall market has been range-bound for the past six months, but the S&P 500 has managed to gain 1.72% for the trailing six months through Monday’s close.
But even with the S&P chopping back and forth between 2,040 and 2,130, the semiconductor sector has been lagging behind the overall market. The Market Vectors Semiconductor ETF (NYSE MKT: SMH) lost 3.93% during the same time period that the S&P gained. This lag by the chip sector could be a bad sign for the SMH fund.
Looking at the daily chart for the SMH we see that the chip ETF has dropped approximately 15% since the beginning of June, but we see potential support in the $50.40 area. We see that the area was the scene of a gap higher last October and then it marked the recent low in July.
The problem lies more in the weekly chart than in the daily chart. The SMH has dropped below the bottom rail of a trend channel that has dictated trade over the last 2 ½ years, and the 13-week moving average is on the verge of crossing bearishly below its 52-week moving average.
The chip ETF is in oversold territory and could see a bounce, but I think it will be a small bounce – just enough to get it out of oversold territory.
If we go to a more long-term chart – one that takes us all the way back to 2007 – we see that the SMH has just dropped below the trend line that connects the lows all the way back to late 2008.
The other thing we see on the extended chart is the moving averages crossing in late 2007, which is the first blue circle. We see that the SMH rallied back up to the 52-week moving average and then fell over 50% in the next six to seven months.
Yes, there have been other times when the 13-week moving average has crossed below the 52-week moving average in the last five years, but this looming cross looks more like the one in 2007 than the others. The reason I say that is because the SMH was outperforming the overall market through the first six months of the year and has lagged the overall market drastically in the last couple of months. A similar pattern took place in 2007, when the SMH outperformed the overall market in the first half of the year, but then really lagged it the rest of the year.
I don’t like what I see in the overall market, and I don’t like what I see in the charts of the SMH fund. I look for a big drop in the SMH over the year. As I said, it is oversold right now and we could see a little bounce, but I would look at that bounce as the time to short more. I would look to short in the $50-$52 range with a downside target of $35.
One Simple System to Win Nearly 9-out-of 10 Trades.
Regular investors dream about these kinds of opportunities – but few ever believe they’re real. Like dragons, the idea of making money on nearly 9-out-10 trades seems the stuff of legend… or if real, reserved exclusively for the market’s slickest traders. Yet, it’s very real. And easily within the reach of regular investors. You can learn all about this safe, simple strategy – and the next three trades shaping up right now – by clicking this link here. Slay your own dragon – Go here now.