Entering December and nearing the year’s end, a reflection reveals that Artificial Intelligence (AI) and the semiconductor industry (particularly Nvidia, represented in SMH) have significantly bolstered the broader QQQ and S&P 500 indexes.
The correlation between the semiconductor industry (SMH) and both the QQQ (which is over 50% technology-weighted) and the S&P 500 has been evident over the past year through November:
In the technical chart and relative comparison of Semiconductors (SMH) versus QQQ and SPY, we observe a bullish ascent of Semiconductors in early 2024, followed by a pullback during the summer months of June and July:
In late November, we noticed a resurgence in semiconductor strength (SMH) relative to the broader QQQ and SPY indexes, with a bounce up from a previous general support area.
Of Note:
- When comparing SMH to the more heavily tech-weighted QQQ, we observe that during the semiconductor bounces from general support areas in April, August, September, and most recently in November, the Momentum/Relative Strength Indicator (RSI) has consistently stayed above the 30 level, avoiding ‘oversold’ territory
- An SMH relative failure below the horizontal support area below could negatively impact the broader markets. Conversely, sustained relative strength in semiconductors, one of the more ‘risk-on’ asset classes, would be highly bullish.
- As the QQQ, SPY, and Technology Sector (XLK) reach new all-time highs, we anticipate that semiconductors (SMH) could also join in this upward trend, benefiting as well from the historically bullish seasonality typically observed towards the end of the year and in an election year.
Patterns reveal trends. Trends reveal trades. And you can find both with Market Rover!
Happy Trading!
