The popular VanEck Semiconductor ETF (SMH) is one way to take a position in a basket of semiconductor companies. The ETF has plenty of liquidity (trading volume) and is transparent about its holdings. Let's check out the charts and indicators for its future direction.
In the daily bar chart of the SMH, below, we can see that prices topped out in November-December-January and turned lower into an early July low. The shares made an impressive bounce until it stopped well short of the underside of the declining 200-day moving average line in August. SMH has sunk to a new low for the move down in September and things do not look encouraging for October.
SMH is trading below the declining 50-day moving average line and the On-Balance-Volume (OBV) line shows a long decline from November as traders have been more aggressive sellers than buyers. The 12-day price momentum study shows only some slight slowing down of the price slide from early to late September. I do not consider this enough of a bullish divergence to generate a rally.
In the weekly Japanese candlestick chart of SMH, below, we see a bearish setup. Prices are in a longer-term decline and trade below the negatively sloped 40-week moving average line. There is no meaningful chart support below the market (the way I read support and resistance).
The weekly OBV is pointed down and confirms the price weakness this year. The Moving Average Convergence Divergence (MACD) oscillator has crossed to the downside from below the zero line for a new sell signal.
In this daily Point and Figure chart of SMH, below, we can see a potential downside price objective in the $125 area.
In this weekly Point and Figure chart of SMH, below, we see the same $125 price target as the daily chart above.
Bottom-line strategy: I have been reading online a number of fundamental analysts pounding the table to buy some of the semiconductor companies because of "valuation." Maybe they will be right in a number of months but unfortunately the charts are bearish right now. Avoid the long side of the SMH.
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