The Charts Show Semiconductor Stocks Are Vulnerable to a Big Pullback, Says Katie Stockton

Why It Matters

A sector‑wide pullback would erode the recent outperformance of tech equities and could pressure major indices, prompting investors to reassess risk exposure. The signals also warn that the semiconductor rally may be nearing its cyclical peak, affecting capital‑intensive industries reliant on chips.

Key Takeaways

• SMH outperformed S&P 500 by ~7% YTD
• Technical models signal nine‑month corrective phase ahead
• TSM broke below daily cloud, support at $293
• Relative strength loss suggests broader market weakness
• MACD histogram downgrade indicates waning long‑term momentum

Pulse Analysis

The semiconductor industry has enjoyed a rare surge this quarter, driven by robust demand for advanced chips in AI, automotive, and data‑center applications. SMH’s 7 percent edge over the S&P 500 reflects both supply‑chain easing and strong earnings from key players. Yet the sector is historically cyclical, with periods of rapid expansion often followed by sharp corrections as inventory builds and macro‑economic headwinds emerge. Understanding this rhythm is essential for investors who have ridden the recent rally.

Technical indicators now point to a turning point. Tom DeMark’s TD Combo model issued two sell signals, mirroring corrections seen in late 2021 and mid‑2024, and the monthly MACD histogram recorded its first downtick since the April 2025 low. The SMH‑to‑SPX ratio’s weekly MACD also reversed, a pattern that historically preceded broader market sell‑offs. TSM, the sector’s bellwether, breached its daily cloud model and is testing a 38.2 % Fibonacci retracement near $293, with secondary support around $232. These bearish cues suggest a nine‑month corrective phase could unfold, potentially dragging related tech stocks.

For portfolio managers, the emerging downside risk calls for a strategic pivot. Reducing exposure to high‑beta semiconductor names, tightening stop‑loss orders, and diversifying into sectors less correlated with chip demand can mitigate potential losses. Monitoring macro variables—such as global manufacturing activity, consumer spending on electronics, and geopolitical tensions affecting Taiwan—will provide early warning signals. While the sector may rebound later, the current technical landscape advises caution, as semiconductor leaders often set the tone for broader equity movements.