Was Monday a shot across the bow for semiconductor stocks prior to earnings season? If so, what do the sellers know? The iShares Semiconductor ETF (SOXX) gave back 7% in five days, observes John Eade, president of Argus Research.
It could just be the market setting the stage for a more-enticing buying opportunity ahead of third-quarter numbers. We don't know the answers. But we do know that the industry has not acted well following the failed breakout to recovery highs on Oct. 6.
iShares Semiconductor ETF (SOXX)
Source: TradingView
Recent breakouts from bullish inverse head-and-shoulders patterns have failed for the SOXX and the VanEck Semiconductor ETF (SMH). In addition, many individual issues that appeared to be tracing out bullish bases for more than four months are now in question.
The semiconductor weakness was across all market caps, which dragged large-, mid-, and small-cap technology indices down from 1.2% to 2.2%. The carnage was in individual stocks and from the largest to the smallest, too, as Micron Technology Inc. (MU) fell more than 7% in five days and Semtech Corp. (SMTC) dropped 11%.
Electronic and telecom equipment names were also thrashed. Most of these stocks had absolute monster moves earlier this year. But as a group, they are no longer reacting favorably to massive earnings beats and increased guidance. Anecdotally, we see many technology analysts, portfolio managers, and traders who have ridden the wave higher – but are now caught in their original positions.