Chip Stocks Just Flashed The Same Signal That Flagged A 30% Crash Last Year

Core Viewpoint - The semiconductor sector is experiencing an overheated rally, with the VanEck Semiconductor ETF (SMH) significantly above its 200-day moving average, reminiscent of a previous peak in July 2024 that led to a 30% decline in chip stocks [1][3]. Group 1: Market Performance - Since early October, the SMH has surged over 20%, outperforming the broader market, but such rapid increases often precede corrections [3]. - The current technical setup of the SMH is similar to the July 2024 peak, indicating potential for a significant downturn [3]. Group 2: Sentiment and Valuation - The semiconductor market is characterized by frothy valuations and euphoric momentum, driven largely by AI demand, with traders overlooking the stretched technical indicators [2][5]. - The relative strength index (RSI) for SMH is at 69.43, indicating overbought conditions, which historically have led to 10-20% retracements [5]. Group 3: Fundamentals vs. Sentiment - Despite strong fundamentals driven by AI demand and ongoing chip shortages in networking and data centers, the sentiment in the market is concerning [4]. - A minor decline in AI demand or capital expenditure could lead to significant market pain due to the current pricing for perfection [5][6]. Group 4: Long-term Outlook - Long-term prospects for semiconductor companies remain optimistic due to the early stages of AI infrastructure development [6].