In any bull market, it’s important to identify sector leadership. That helps us trend follow on lesser time periods and to identify bigger inflection points on broader time periods.
Today’s focus will be on the tech-leading Semiconductor Sector (SMH). And as Joe Friday says, “The facts, Ma’am. Just the facts.”
As you can see in the first of today’s chart 2-pack, $SMH has traded in a bullish rising trend channel for well over a decade. In fact, the Semiconductors ETF broke above the upper channel resistance into 2021. And this breakout carried SMH slightly above its 261.8% Fibonacci extension level.
It is now retesting the 261.8 Fib and upper rising channel line (but this time as a confluence of SUPPORT). It will be important for bulls that this long-term leader holds at this dual support level!!!
When we turn to our second chart, we see a similar theme. This is a long-term ratio chart highlighting the relative strength of the Semiconductors (SMH) vs the S&P 500 (SPY).
Once again, we see Semiconductors gains strength from 2009 on. And in the past 5 years, a strong rising trend channel has formed. But a recent pullback in this ratio has the Semiconductors (SMH) “leadership” position testing lower channel support at (1).
So both the Semiconductors chart and the Semiconductors leadership ratio chart are testing key support at the same time!! We delivered the facts… and now is the time to watch the Semiconductors. Will support hold and the up-trend remain intact? Or will support break and take Semiconductor leadership with it? Stay tuned!