Recovering Chip Stocks Offer Opportunities, Experts Say

As the stock market continues to face pressures from various sectors, chip stocks have started to climb today in an attempt to recover from recent sell-offs. Despite this uptrend, the S&P semiconductor ETF (XSD) remains down over 15% this year.

Amid investor concerns about AI demand and the potential implications of chip export controls, Jonathan Krinsky, BTIG’s chief market technician joins Catalysts’ host Madison Mills to shed light on these pressing issues affecting the semiconductor industry.

The Semiconductor Industry’s Technical Analysis

According to Jonathan, if we take a close look at the semiconductors, it’s clear that they were largely trading sideways for most of last year despite much hype around AI. As a result, their relative strength, which often precedes their absolute performance, began to deteriorate in the latter part of the year.

"We saw them moving within a pretty wide trading range last year," Jonathan explains. "Despite all this hype about A I and how it’s going to be driving growth for the sector, you could still have that happen without necessarily having momentum or relative strength."

"Relative strength often precedes absolute performance," he continues. "And clearly what we saw in semis is a bit of breakdown with the broad market over last few months, where relative strength just began to deteriorate."

Jonathan’s insights reveal an in-depth analysis of technical indicators. He shares that it doesn’t take a lot of skill for anyone to look at the 200-day moving average, which has been watched closely by many investors.

But he clarifies, "We really think there’s been too many eyes on that particular average, but the second break we’ve seen from below down is probably more indicative of where you might start seeing some buying opportunities in the space."

In technical analysis, looking for momentum changes or overextensions can make you better prepared and informed about a potential reversal.

"And that gets to another key level we’re watching closely: downside exhaustion," Jonathan points out. "Even though this sector has been trading in a pretty wide trading range, it doesn’t take much more price or time for you to reach your levels of being over-sold."

"This can sometimes happen but what you have left are potential pockets of opportunity." However technicals alone would not be enough because if market conditions change rapidly there will need nothing other than adapt.

Market Trend Analysis – Pressure and Indicators

"So when we talk about the overall trend in semis over last year, you’ll notice how broad," Jonathan concludes. "In fact it’s probably hard to put anyone else in a category that would go down more in value."

Looking at our timeframes for investors looking forward into 2022 is crucial part for all of us, Jonathan points out and said. He stated.

"That might just be an entry point where people can jump back in given what we see happening.