How Long Can Semiconductors Lead the Market?


With Jerome Powell so data-dependent, as he stated on his second and last day of testimony, it seems pretty obvious where most of the growth and labor strength is coming from.

Tech / S&P 500 Chart

Not the first time we have seen semiconductors lead the market; we can say, historically, it has not ended well if the rest of the Economic Modern Family cannot keep up.

Tech’s relative premium compared to the S&P 500 is nearing its pandemic bubble peak.

This is in an environment, though, a bit different than in late 2021. We now have much higher interest rates and slower economic growth.

And that is both good news and bad news. With AI and chip stocks so obviously outperforming the SPDR® S&P 500 (NYSE:SPY) and the rest of the Economic Modern Family, you have to wonder-

Delusional response, or like Wonder Woman herself, impervious to the barbs of rates, GDP, geopolitics, and sentiment?

SMH-Monthly Chart

Of all the sectors in the Modern Family, VanEck Semiconductor ETF (NASDAQ:SMH) is indeed the strongest. Our “Sister” SMH sits right below the 23-month or 2-year business cycle.

Why is this significant? In 2021 we saw a major bull market. In 2022, we had a major bear market.

Is it any wonder that 2023 remains the what’s up year to date? Yet it is also the reason we are watching SMH so carefully.

If SMH fails to take out the 23 months and begins to decline from here, the weakness of Regional Banks (SPDR® S&P Regional Banking ETF (NYSE:KRE)) and Retail (SPDR® S&P Retail ETF (NYSE:XRT)) has come home to roost.

Conversely, should SMH clear and close by month’s end the 23-month moving average, then it tells us 2 things.

  1. The best hope for the US economy’s growth lies with chip technology.
  2. The rest of the Family may not run hot, but it will more than likely stop the bleeding.

ETF Summary

  • S&P 500 (SPY) 390 support with 405 pivotal 410 resistance
  • Russell 2000 (IWM) 190 resistance -185 support
  • Dow (DIA) 326 support 335 resistance
  • Nasdaq (QQQ) 284 big support 300 pivotal 305 resistance
  • Regional banks (KRE) 57 big support 60 resistance
  • Semiconductors (SMH) 240 pivotal 248 key resistance
  • Transportation (IYT) 240 resistance and 230 support
  • Biotechnology (IBB) 125-135 trading range
  • Retail (XRT) 66 pivotal with 64 key support


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