What Are the Semiconductors Telling Us Here?


One of the big reasons behind the incredible market strength this year has been the much-touted “A.I. narrative” that has invaded almost every feature of the news cycle. Even coffee shops and tattoo artists are involving A.I. into their business models to the extent that they can get away with. It’s been amazing and strange, even perhaps surreal.

Be that as it may, many of the semiconductor companies have been especially strong this year, with the most obvious stock being NVDA, with it’s jaw-dropping, mind-frying 20+% gap up to a new high earlier this year.

Now if we are looking for signs that a market top of some kind is looming—we have this open question about whether the Fed’s hiking cycle will lead to a recession—we would at least hope to see signs of such a top coming from more than one direction. And since the semiconductors were so strong already this year, I do find it amazing to be presented with a structure like this on AMD now:


That is a pretty well-defined bull flag. That of course doesn’t mean that it has to break out, and even if it does that, it doesn’t mean it has to go on forever from that, either. But, it’s there, and until it breaks down, it’s possible that AMD sees some more strength ahead of us at least in the next few weeks. If this simply collapses from this structure, that of course would be a very bearish development. But it hasn’t done that yet, so one might want to give it the benefit of the doubt, at least for the time being until we see what it wants to do.

Looking at the broader SMH semiconductor ETF, much earlier in the year, I pointed out in the Discord server—sort of as a joke to be honest—a large inverse we could see developing. I didn’t particularly have tremendous faith that it would play itself out at the time. But then the A.I. narrative struck, and this sure as hell did play out after all:


This, as a broader instrument, doesn’t look like a bull flag up here at these highs, as AMD does. But I will note that it didn’t quite reach its measured move of that inverse, either. I don’t know if that means it’s going to try to make another push or not. Things don’t have to reach their measured moves. But I’d like to see what sort of structure might develop up here because something might still unpack itself ahead of us.

Sometimes folks will say that the “Semis tend to lead.” And at least so long as AMD is in a structure like the one it’s in, I am inclined to see how that plays out and maybe even give it the benefit of the doubt for a moment. Before getting too excited about the bearish case, I’d like to see that bull flag fail for instance.

Anyways, I thought you might find it helpful to see that structure. And I think it’s worth watching.

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