Semiconductors are currently at a critical inflection point following a period of significant volatility. In our last update, we discussed how semiconductors have reverted to their long term mean after a turbulent earnings season. Today, investors are eager to find the signs of a breakout and a continuation of the AI trade. While the recent days have produced strong returns with the RSI and MACD becoming bullish again, it's still a little too early to call this a definite breakout that can be sustained. Resistance at the 50-day moving average has still yet to be broken and comparing its performance to the overall market, semiconductors are still in a downtrend. Even if these were to change, it is not guaranteed that buyers will rush in.
Chip stocks are still heavily swayed by earnings and investors may be waiting on the sidelines until after Nvidia reports earnings in two weeks. Additionally, success has not been even across stocks in the sector. In recent days, companies like Texas Instruments and Analog Devices have been unable to make the same recovery that companies like Seagate and Nvidia have. That's likely because investors are becoming more choosy about the companies that have a more promising future in the AI trade.
While fundamentals for semiconductors remain uncertain, technical indicators point to the potential for another breakout. Wise investors should watch indicators of momentum like the RSI for signs of a return to growth.
This material is for informational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results.
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