A reckoning may be on the horizon for semiconductor stocks. The VanEck Semiconductor ETF (SMH) last week capped off its best first half ever, surging 82% in the latest six months. It also posted its biggest quarterly gain since Q2 2021, soaring 71%. Those gains drove the broad market to all-time highs, with investors piling in, looking to boost exposure to artificial intelligence. But the final two sessions of the week told a different story. SMH dropped 5.4% on Wednesday and another 4.5% on Thursday in a rout marked by traders rotating out of AI-linked stocks and into other parts of the market. Lots of Wall Street analysts remain bullish on chipmakers, of course. Goldman Sachs' James Schneider raised his price targets on AMD and Applied Materials . Bernstein increased its target on semiconductor equipment maker ASML . Yet, some of the moves seen in the industry lately point to trouble. BTIG chief market technician Jonathan Krinsky pointed out that the iShares Semiconductor ETF (SOXX) has logged a daily move of at least 3.9% in the last six sessions. "This sort of extreme volatility near a high at best suggests a long period of consolidation, and at worst a more meaningful top," he said. Krinsky added that while semis tend to do well in the summer months, the group "front-ran that" with its massive first-half gain. On top of that, optical and electronic stocks are trading far below their 52-week highs "but still have meaningful downside before stronger support comes in," while data center stocks are breaking below their 50-day moving averages. Jeff deGraaf, head of technical research at RenMac, also noted that his firm's SOX bubble signal was triggered in late April, "and the chip complex is now the only corner of the market in bubble territory." "This reads as a broad, still-confirming blow-off in the mold of 1995 and 2000 — not the divergent rollover that marked the 2022 top," he said. The SOXX ETF closed Thursday's session — the final trading day of last week due to U.S. markets being closed Friday for the July Fourth holiday — at $566.32. That's just a fraction above its 50-day moving average of $566.02. To be sure, there are some silver linings. DeGraaf pointed out that it's only the chipmakers that are in bubble territory — not the entire stock market. Meanwhile, Krinsky noted that the S & P 500 healthcare sector is breaking out. The XLV ETF , which tracks the industry, is up 7% over the past month, outperforming the S & P 500, which has gained 4% in the same time. "One potential yellow flag is the fact that because correlations are at 20+ year lows, there is a risk of a more full-fledged risk-off move later this summer," Krinsky wrote. "For now, we think it's premature and would play the rotation, but it's moving up our radar."
<small>Source: CNBC</small>
