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Chip stocks are climbing today as the stock market (^DJI, ^IXIC, ^GSPC) looks to recover from recent sell-offs, though the S&P semiconductor ETF (XSD) remains down over 15% this year.
Jonathan Krinsky, BTIG's chief market technician, joins Catalysts host Madison Mills to discuss the pressures facing the semiconductor industry and key technical indicators for a potential rebound.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
Chip stocks climbing today as the overall market looks to rebound from the recent sell-off. Still, the S&P semiconductor ETF down more than 15% this year. Amid investor concerns about AI demand and the impact of potential chip export controls. Joining me now with more, we've got Jonathan Krinsky, BTIG's chief market technician. Jonathan, great to speak with you here. Let's just start on the context for our audience. What changed in the semiconductor sector to lead to some of the pressure that we have been seeing?
Well, um, good to be here. If you look at the semis, you know, really on a on both an equal weight and cap weighted basis, they really were in a pretty wide trading range for most of last year despite, you know, the AI hype narrative. And so as that was happening, the relative strength versus the S&P, you know, was beginning to deteriorate. And um, you know, relative strength often precedes absolute performance and that's, you know, clearly what happened. So, um, you just didn't have any momentum or relative strength and that led to a, you know, a a bit of a breakdown, um, you know, with the broad market in last few months.
Yeah, and I know that you look at the technicals as a CMT. What might be a level or an indicator of a bottom being hit that could lead to some more movement to the upside in chips?
Yeah, so so we've been looking, you know, both in semis and across the broad market, um, some downside exhaustion levels. Um, obviously there was a lot of eyes on the 200 day moving average for the S&P. Um, you know, we felt there was maybe too many eyes on that, but then the second break, um, we think probably is more uh a better buying opportunity which is where we're at right now. Um, you know, you're starting to see some elevated um, capitulatory signals on the volume side, on the put call uh ratio. You know, it's it's certainly not something not levels that we've um, can't go higher or can't get more oversold, but I think, you know, we're down nine or 10% from the highs if you were looking for an opportunity for a for a trade. I think this is the entry point. Um, bigger picture there's probably more concerns, but I think the next, um, you know, three, four, five% should be higher, not lower than here.
And just to stick to chips specifically, what do you think leads to more of the action that we're seeing today? Obviously, today is is a little bit of a move to the upside in a lot of these chips names, but what technically are you seeing that indicates that that rally is going to have legs?
Um, I mean same thing, it's just, you know, you get you get to a point where um, uh, you know, momentum kind of and sellers kind of exhaust themselves to the downside. Um, you know, and even in bear markets, if and we're not saying this is a bear market, but if if it does turn out to be one or even, you know, more of a deeper correction, you do get some pretty vicious rallies. So, um, you know, you want to be mindful of those oversold conditions and, you know, if nothing else, maybe, um, you know, wait for a bounce before um, you know, looking to sell again.
And I wonder too if you can talk to me about what you're looking at when it comes to Nvidia specifically. Obviously the chip giant in the room, a lot of selling pressure that we've seen on that stock year to date. Those high earnings expectations being a challenge for them as well. What are the technicals telling you about how long a possible bounce back on Nvidia could last?
Yeah. Um, I mean similar idea. It it kind of traded sideways for much of last year in a trading range and it's kind of broken below that a bit. So there's a lot of, you know, buyers that, um, you know, probably would like to be made whole and so I think that's the issue if you do get that bounce, um, you know, then back into the into the 2024 trading range. That's going to represent, um, decent resistance. So, um, you know, I I I think we'll get a bounce, but again, you got to watch the magnitude and how how the bounce responds into that resistance zone. You know, if that fails again, that's indicative of probably a more substantial, uh, larger top.
All right, Jonathan, we got to leave it there. Thanks so much for joining us.
Thank you.