The semiconductors have been climbing the wall of worry, and that wall is becoming more agonizing recently. The SMH recorded its third straight CLOSE in the lower half of the daily range, AFTER a bullish ascending triangle breakout on Tuesday. The best breakouts tend to work right away, so the perception is a possible bull trap here. On its WEEKLY chart it recorded a bearish reversal at all time highs. After that stiff dose of gloom, we have not even started with software. The IGV undercut its 200 day SMA Friday, and bearishness has not even seemed to register in sentiment yet. Marginally encouraging was the quick recapture of the important line after breaking below it on 10/2 just for one session as 10/3 registered a bullish engulfing candle. The ETF lost 3.8% this week, its second worst WEEKLY decline of 2019, as stalwarts like COUP shaved nearly one fifth of its value this week alone. These are drastic moves and are rarely seen in bottoming phases.
Nvidia Deservers General Status Going Forward:
The semiconductors have been doing a good job in carrying the bulk of the weight in the technology world, but with little help elsewhere the fatigue may be setting in. Some bright spots among individual names have dimmed as of late, with MU suddenly 15% off most recent 52 week highs, and in the process of possibly forming the right clavicle in a bearish head and shoulders pattern. Leader KLAC recorded a bearish shooting star on Thursday. There are some names still looking well, with CRUS trading in a range between the round 50-60 numbers since late July. The chart below of NVDA deserves respect, and although it hit a speed bump at the very round 200 number this week, the trend is higher and weakness should be taken advantage of.
In life as in markets most people have short memories. Whether that is advantageous or not is up for debate, but in investing it may likely be a good thing. An example of one not having a short recollection is the chart below of CIEN and how it appeared in our 10/14 Technology Note. Those who missed out upon the huge 6/6 earnings jump of 27% could have been rewarded for their patience as the gap was recently filled. There is some wisdom to align to this development to paint either bias one has. The bulls will say the gap was filled, the bears will note the old axiom, if one missed the train, and it comes back for you there is most likely something wrong with it. Either way PRICE will determine who is right, and Friday shrugged off the weak overall action, and in my opinion the risk/reward still lies in favor of the bulls. Trade accordingly.