Yesterday in the trading room, member @natdicarlo asked: Randy, semis ever going to correct? Levels to watch for breakdown?
My reply (with first chart below) was:
I still very much think the semis are about to embark on very profitable (if short) correction. The support levels that I’m watching are more so on some of the individual top semiconductor stocks, not so much SMH & SOXX (semi etfs), although both SMH & SOXX did just recently break below their respective very steep near-term uptrend lines, shown in this daily chart of SOXX as a dotted white line.
Also note that many of the leading semis, including quite a few of the individual semi stocks that I recently highlighted as short trade ideas such as TSM, QCOM & AVGO are still well off their highs that were put in weeks or even months ago & appear to be clearly rolling over.
SOXX daily Nov 30th
That screenshot above was taken yesterday afternoon, about 2½ hours before the market closed and the update chart below shows that the semis (via the etf SOXX) have already dropped about 4% since then. The very impulsive selling following that minor uptrend line break & backtest of the intersecting wedge trendlines helps to validate the bearish case & likelihood that SOXX is headed to any or all of the support levels/targets shown on these charts (113.60, 108ish & 102ish).
SOXX daily Dec 1st
book-to-bill ratio for oct 2016
Should my call for a substantial correction/bear market (20%+ drop) in the semiconductor stocks pan out, keep in mind that would only help to firm up the case for a significant drop in the broad markets as the tech sector has, by far & wide, been the driving force behind this bull market since its inception in March 2009. Being that the semiconductor sector is often considered the canary in the coal mine for the tech sector, weakness in the semis (such as a drop in semiconductor orders, such as the most recent plunge in the book-to-bill ratio clearly reflects) often provides an early warning sign of slowing in the tech sector as a whole and if the tech sector is headed lower, it will most likely drag the broad market & other sectors down along with it.