Trade fears with China are driving the semiconductor sector lower again today. Also adding pressure: Bloomberg News reported Sunday that Xilinx XLNX, -6.53% XLNX, -6.53% and other U.S. chip makers, including Intel Corp INTC, -2.21% Qualcomm Corp.QCOM, -5.27% and Broadcom Inc. AVGO, -4.56% have frozen the supply of critical software and hardware components to Huawei.
The SMH(VanEck Vectors Semiconductor ETF) is down over 3% after beginning today’s session with its deepest gap lower open of the year. The heavy distribution wave that hit the index that began a little over a week ago has taken a toll. With today’s loss the SMH is now off 15% from the 2019 highs. This steep drop took only four weeks.
The SMH has now retraced nearly all of the second leg of the powerful rally off the December 2018 lows. From the early March low the index surged 22% before running out of steam late last month. In all, the SMH gained nearlly 50% from the December 2018 lows too the April highs. At this morning’s low the index has retraced nearly 50% of this huge move.
The SMH is now testing the top band of a major support zone. This key area includes the 200 day moving average($101.40) as well as the 2018 summer lows. Just below is the 50% retracement level of the entire post Christmas rally($100.40). The March low, which marked a major upside key reversal, is just above $99.00(lower band of support).
In the near term Semi sector bulls should keep a close eye on this support zone. A solid base here could provide the footing needed for a significant rebound.
At time of publication we are long SMH in some managed accounts.