Our lovable laggard semiconductors are actually showing incredible relative strength today, up 3% while the rest of the market drifts lower and Apple sinks. As I noted last week, when you look at the daily chart of SMH, ETF for the semis below, it is very easy to declare a major double bottom is here. However, double bottoms (and double tops) are some of the most overrated potential chart patterns that rarely come to fruition. Usually, you do not know a true double bottom has arrived until much later with some strong confirmation Moreover, the 50 day moving average is still dangerously downsloping on the SMH (blue line below), rendering all rallies suspect.
I know that bulls are pointing to the strength in the semis today as a “mustard seed” of good things to come, but I have found that allowing the laggards to truly pull themselves out of the hole first works an awful lot more of the time than declaring a major bottom upon us. There are charts out there that have weathered the market volatility well, basing above all rising moving averages. I would rather focus on those than the lagging semis, as a group.
2 Responses to Cheap Thrill for the Semis or Real Deal?
Mustard seed or mustard gas…