Semiconductor Sector Shift: The Outlook for Investors
A Mixed Bag for Semiconductor Stocks
As we dive into the current landscape of semiconductor investments, it’s evident that a significant shift has occurred following a lackluster second half of the year. While Nvidia (NVDA) continues to shine with its impressive performance, the same cannot be said for most of its peers. In fact, since peaking on July 11th, the PHLX Semiconductor Equal Weighted Index has plummeted by approximately 25%. This stark contrast is highlighted by the S&P 500’s nearly 6% gain over the same timeframe.
The semiconductor equipment stocks, particularly, have been a source of concern. Industry stalwart ASML Holdings N.V. (ASML) experienced an earnings-driven breakdown in October, effectively reversing a cyclical bull trend that had been ongoing since 2022. This trend has placed stocks like Applied Materials (AMAT) and Lam Research (LRCX) at a critical juncture, as they are now testing essential support levels on their charts.
Key Technical Indicators
When analyzing AMAT and LRCX, both companies display significant warning signs supported by technical indicators. For the first time since early 2022, the monthly MACDs for these stocks have shifted lower, suggesting a notable weakening in long-term momentum. Compounding the risk, their monthly stochastics are not yet in an oversold territory, heightening the likelihood that their corrective phases could extend through to the first half of 2025.
Let’s take a closer look at AMAT. It recently gapped lower, slipping below support within its weekly cloud model around $177. If this breakdown confirms at this week’s close, it could signal a long-term bearish reversal. The previous 2021 high, now acting as support, stands at approximately $167. However, if the bearish trend continues, this support is at risk of breaking as well. Secondary support sits at a crucial 61.8% Fibonacci retracement level near $142.
On the other hand, LRCX has already confirmed its breakdown below its weekly cloud model, marking a long-term bearish development. With a crucial close on Friday looming near its 2021 peak at approximately $73, the style of patterns emerging reflects a heavy downward pressure. Like AMAT, LRCX’s weekly MACD remains negative, showing no signs of relief, which means its downturn could deepen into 2024. The secondary support for LRCX rests at the same 61.8% Fibonacci retracement level near $62.
The NVIDIA Effect
Upcoming earnings from Nvidia on Wednesday could inject a dose of short-term volatility into the semiconductor sector as a whole. However, the bearish setups reflected in the monthly charts of AMAT and LRCX suggest that breakdowns are more probable, even if a brief rebound allows certain support levels to remain intact temporarily.
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Conclusion
In summary, keeping a watchful eye on the semiconductor sector is crucial as shifting market dynamics unfold. As technical indicators suggest potential pitfalls for stocks like AMAT and LRCX, informed decisions backed by thorough research and insight will be key to navigating what lies ahead. At Extreme Investor Network, we remain dedicated to bringing you the information you need to make well-informed investment choices.