How Long Can Semiconductors Lead the Market?

March 8, 2023

Mish's Daily

By Mish Schneider

With Jerome Powell so data dependent as he stated on his second and last day of testimony, it seems pretty obvious where most of the growth and labor strength is coming from.

Not the first time we have seen semiconductors lead the market, we can say, historically, it has not ended well if the rest of the Economic Modern Family cannot keep up.

Tech’s relative premium compared to the S&P 500 is nearing its pandemic bubble peak.

This is in an environment though, a bit different than late 2021. We now have much higher interest rates, and slower economic growth.

And that is both the good news and bad news.

With AI and chip stocks so obviously outperforming the SPY and the rest of the Economic Modern Family, you have to wonder-

Delusional response, or like Wonder Woman herself, impervious to the barbs of rates, GDP, geopolitics and sentiment?

Of all the sectors in the Modern Family, SMH is indeed the strongest.

Our “Sister” SMH sits right below the 23-month or 2-year business cycle.

Why is this significant?

In 2021 we saw a major bull market. In 2022, we had a major bear market.

Is it any wonder that 2023 remains the what’s up year to date?

Yet it is also the reason we are watching SMH so carefully.

If SMH fails to take out the 23-month and begins to decline from here, clearly the weakness of Regional Banks (KRE) and Retail (XRT) has come home to roost.

Conversely, should SMH clear and close by month’s end the 23-month moving average, then it tells us 2 things.

  1. The best hope for the US economy’s growth lies with chip technology.
  2. The rest of the Family may not run hot, but it will more than likely stop the bleed.


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ETF Summary

S&P 500 (SPY) 390 support with 405 pivotal 410 resistance

Russell 2000 (IWM) 190 resistance -185 support

Dow (DIA) 326 support 335 resistance

Nasdaq (QQQ) 284 big support 300 pivotal 305 resistance

Regional banks (KRE) 57 big support 60 resistance

Semiconductors (SMH) 240 pivotal 248 key resistance

Transportation (IYT) 240 resistance and 230 support

Biotechnology (IBB) 125-135 trading range

Retail (XRT) 66 pivotal with 64 key support

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