Semiconductor ETFs at Risk of Technical Downturn



Semiconductor ETFs fell in the mid-single digits

Monday was yet another bad day for semiconductor stocks. The VanEck Vectors Semiconductor ETF (SMH) was down 4.6% on May 13. The chip stocks fell as China retaliated against the US’s tariff hike and the US Supreme Court ruled that Apple’s customers can sue the company for forcing them to buy applications only from its app store.

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The moving average takes the average of a stock’s prices over a certain period to understand in which direction its movement is skewed. The SMH fell 4.6% and is currently trading lower than its 50-day moving average and just 3.9% above its 200-day moving average. The case is similar for the iShares PHLX Semiconductor ETF (SOXX), which fell 4.7% and is currently trading 6.9% above its 200-day moving average.

Another mid-single-digit decline could send the two ETFs into a technical downturn. The last technical downturn lasted for four months (October 2018 to January 2019). A stock is in a downtrend when the stock price dips below the 200-day moving average.

China’s retaliation is bad news for the semiconductor industry

Last week, the US-China trade war reached a new level when the US increased tariffs on $200 billion worth of Chinese imports from 10% to 25%, effective on May 10. On Monday, China retaliated by announcing tariffs of 5% to 25% on $60 billion worth of American imports, effective June 1. The tariffs on American imports caused stocks of semiconductor companies with high exposure to China to fall in the mid-single digits. China’s retaliation is bringing fears of a full-blown trade war to reality.

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