The VanEck Vectors Semiconductor ETF (SMH) has a fascinating big-picture chart set-up that is loaded with technical information, most of which argues for more downside directly ahead.
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’s 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 MPTrader.com, 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!