The S&P Semiconductors Select Industry Index, a key market barometer, has shown signs of faltering, indicating potential challenges for the broader stock market. Unlike other broad stock market indexes, this index is equal-weighted and has recently peaked in terms of price and relative standing, breaking its uptrend since October last year.
The index’s relative strength has only managed to recover half of its fall since its peak in 2000. This inability to surpass resistance suggests that broader stock indexes may face a pullback in the coming weeks.
A recent weekly analysis of the Semiconductors Index reveals bearish reversals at points where advances had previously peaked. Each reversal coincided with the index testing and slightly exceeding its 11-week moving average. The most recent instance was in early August when the index failed to rally back above this threshold, marking a clear break from the uptrend established since the previous October low.
When compared to the Equal Weight Index, semiconductors have shown a weakening relative strength. They have formed a rounding top at a resistance level that has held for 23 years. Despite many indexes surpassing their 2000 peaks by substantial margins, the semiconductors’ relative strength has only recovered half of its decline from its 2000 peak.
Given these trends, experts are advising clients to sell and realize profits in semiconductor stocks and most technology holdings. Andrew Addison, author of The Institutional View, a research service specializing in technical analysis, is among those offering such advice.
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