Chip chart may be showing trouble

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After two years of monster upside, are semiconductors running out of gas?

Chip stocks have not only fallen on bearish news recently. They’re also showing some potentially worrisome technical patterns.

Last week we covered how unhappy investors were with quarterly reports from Lam Research (LRCX) and Taiwan Semiconductor (TSM). There have also been other negative rumblings, like talk of a smart-phone slowdown and growing hedge-fund bets against tech and trade-war anxieties — especially after the White House blocked sales to Chinese telecom ZTE.

The price action is also looking less terrific than at other times in the sector’s big rally over the last two years.

Looking at the Philadelphia Semiconductor Index ($SOX on TradeStation), one immediately sees a lower peak following March’s all-time record high. Next, that pivot occurred at the 50-day moving average, a line where it bounced several times since May 2016. Is old support becoming resistance?

I also loaded $SOX’s 30 member stocks into RadarScreen® and found that only two — Intel (INTC) and Mellanox (MLNX) — have managed to rise in the last month. In contrast, more than half the S&P 500’s constituents have risen over the same time period. That may indicate buying interest toward the group is waning.

In summary, chips have been on fire for two years straight. But now sentiment may be weakening.

Philadelphia Semiconductor Index ($SOX)
Philadelphia Semiconductor Index ($SOX). Circles show previous bounces at 50-day moving average.
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.