Semiconductors have struggled quite handedly over the last few weeks, leaving quite an interesting technical picture to ponder as we close out 2026. We talk about options below.
With how strong they have been over the last few years, many of us are probably living (or, more recently, dying) by the semiconductor space. Recent exhales like the one we have seen over the last few weeks pose quite a challenge for money managers. On one hand, the swift decrease for semis has left plenty of damage to the technical picture, damage “the book” would say necessitates the removal of the space from your portfolio in some capacity. On the other hand, decreasing semi exposure poses at least three main yellow/red flags. First, the magnitude of movement in the space could quickly lead to whipsaws or signal head fakes, which could quickly punish us for being “wrong” if things rally to close out 2026. Furthermore, despite the near-term exhale, trading out of some semi names could come with a hefty tax bill as many names still trade above levels you would have purchased them at over the last few years- a tax bill your clients might be less than pleased to plan for around the holidays. Finally, while several names have put together recent attempts to rebound, many different semi firms still trade in heavily oversold territory, making an exact selling process difficult to execute. In short, there are equally compelling reasons both to decrease and maintain exposure to the sector. We will take today’s featured article to talk about the situation.
We will start with a broad conversation of major representative SOXX. The technical picture has undoubtedly worsened over the past few months, heading into a range of resistance off all-time highs at $215. Since that point, the fund has reached a low of $132, a nearly 40% decline over the last few months. Most of the downside came over the last few weeks, seeing SOXX plummet back into a negative trend on its default chart. The trendline had been in place since the Tariff Tantrum lows, ushering the fund higher over the better part of the last year and a half. The Tariff Tantrum break ultimately ended up being a head fake but that isn’t to say we should take this break any less seriously. Now earning a subpar 2.65 fund score (as of 11/9), the fund has recently lost both near- and long-term strength against benchmark SPXEWI, a point to monitor going forward. A bounce out of heavily oversold territory back to ~$146 gives those of you looking to get out of sector an opportunity to do so. That said, this bounce could logically continue into the mid- $170’s before running out of steam. Any reversals down into O’s before that point would be a net negative.
Even with the decline, it might not be the “right” time to cut exposure quite yet. To quantify this, we can measure participation within the sector. While there are several different ways we could do that, in this case we will look at both ^BPSEMI & ^TWSEMI. Measuring the percentage of semiconductor stocks on PnF buy signals or trading above their ten-week moving average, these indicators give some insight into the near-to-intermediate-term participation rates as we move towards the close of 2026. As you would expect with these recent declines, these participation rates are at some significant lows. As of 11/9, just 12% of semiconductor stocks trade above their ten-week moving averages or on buy signals. The table below highlights ^BPSEMI as well as forward returns for SOXX across different levels. Notice forward returns from low field position, which suggest that near-term rebounds could be swift and intense for those of you looking for a better exit opportunity than the current washed out position. While things could certainly get worse from here before they get better, history points to a healthy rebound coming down the pipeline- a rebound which would allow us to reevaluate our opinion towards the broader semi space.
Of course, one of the largest influences on the broader semiconductor space has been NVDA. While no longer the only show in town, Nvidia continues to drive a lot of attention within the sector. Most recently, negative news headlines surrounding an alleged affair for CEO Jensen Huang sent the stock as much as 5% lower during trading on 11/9. This came on a day where SOXX advanced more than 8% with intraday action, marking a ~13% spread between NVDA and its sector benchmark. Moving back into a negative trend with market action to close out October, NVDA is now a low attribute name and is challenging a range of old support from $166 to $170. Similar to the broader semiconductor space, the magnitude of downside participation leaves the name in heavily oversold territory around current levels, so a bounce back up into the $180’s could be expected in the near-term. Note, NVDA reports earnings on 11/17. Heading into the call, the name will most likely be a low attribute option.
The skinny of this report should largely be that the semi space has deteriorated materially, enough so that further money shouldn’t be put to work into the area for now. While things are oversold and the prospects of a near-term bounce remain elevated, the real test will ultimately come when markets decide who the leader will be to try and get us back to new highs. If semis aren’t a contender, it will be intriguing to see what leadership emerges as we close out 2026.
