Does the Market Have a High-Tech Momentum Problem?

The stock market was open for just a few hours on Tuesday, giving some high-profile tech stocks just enough time to post a nasty reversal.

The market’s strongest performers in the tech space continue to gyrate in a volatile range just two weeks after the Nasdaq Composite’s fall from all-time highs.

As if this abrupt momentum shift wasn’t causing enough trouble, we’re now witnessing trade war politics sneaking into the picture.

A Chinese court blocked the sale of some Micron Technology (NASDAQ:MU) chips just before our midweek holiday, sending shares of the chipmaker lower by more than 5%.

Here’s a little background on the case from the Wall Street Journal:

State-owned chip maker Fujian Jinhua Integrated Circuit Co. and its Taiwanese partner, United Microelectronics Corp. accused Micron in January in China of making products that violate their separate patents. That came a month after the U.S. company filed a lawsuit in California alleging Jinhua and UMC stole Micron’s trade secrets at its Taiwan plant. Jinhua has denied the allegations.

Micron’s little trade war dilemma helped spread weakness throughout the semiconductor sector earlier this week. After opening at its highs for the week, the VanEck Vectors Semiconductor ETF (NYSE:SMH) dropped almost 2% Tuesday afternoon. The semiconductor fund sunk below its 200-day moving average once again and closed at prices we haven’t seen since early May.

Semis pushing lower also weighed on the tech-heavy Nasdaq Composite. The Nasdaq was once again the hardest hit of the major averages, dropping almost 0.9% by Tuesday’s closing bell. The Dow and S&P both lost about 0.5%.

A market leader since late 2016, the semiconductor sector is starting to noticeably lag its tech cousins.

Semiconductors

While the Nasdaq Composite posted new all-time highs last month, the VanEck Vectors Semiconductor ETF failed to top its March highs. Yes, the Nasdaq has faded from its highs. But it remains in positive territory since June 1. Meanwhile, semis have fallen a collective 6% over the same timeframe.

We’ve been discussing semiconductor weakness for a few weeks now as the stocks led the market’s recent retreat.

Just last week, I showed you how the sector had gone from knocking on the door to new all-time highs to diving below its 200-day moving average.

We’ve also witnessed recent failed breakouts in flagship chipmakers such as Intel Corp. (NASDAQ:INTC) and NVIDIA Corp. (NASDAQ:NVDA). With Micron now embroiled in patent drama, the lagging semis are having some serious trouble finding their footing.

We’re going to have to keep our guard up during what has already become a volatile trading month for tech stocks.

While we enjoyed a quick run to new highs in March, the semis have since turned into a choppy mess. We stepped aside from our SMH trade in late June as it was beginning to consistently underperform.

But that doesn’t mean we should completely ignore the semis for the rest of the summer. In fact, these stocks could provide important clues for market direction as we approach earnings season.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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