Just over two weeks ago, we checked in on the VanEck Semiconductor ETF (SMH).

SMH invests in the semiconductor sector. And it was facing its first real test in 2024…

Both Taiwan Semiconductor Manufacturing (TSM) and Advanced Micro Devices (AMD) reversed from recent highs. Combined they make up 15% of SMH. That left market leader Nvidia (NVDA) carrying an ever-increasing load (26% of SMH).

Now NVDA is struggling to hold momentum. And SMH’s transition into a sideways triangular pattern has developed further.

So let’s take a fresh look at SMH today to see where things might be headed next…

A Broad Bullish Pattern

The left-hand side of the chart below shows the first leg of SMH’s rally started from its April 2023 lows.

After that initial burst, SMH consolidated from July through October. Then it resumed its rally in early November:

VanEck Semiconductor ETF (SMH)

Source: eSignal

The magnitude (and length) of the second rally leg far surpassed the initial rally in May.

From its October low to its March 8 high, SMH rallied a massive 75%. That March high also represented a full doubling of SMH’s price in less than a year.

This broader bullish pattern (rally, consolidate, then rally again) is visible in the action of the longer-term 50-day Moving Average (MA, blue line).

And it’s also reflected in the action of the Relative Strength Index (RSI).

The RSI mainly tracked in its lower half when SMH was consolidating. And it moved in its upper band when SMH was rallying.

SMH’s rally also coincided with the 10-day MA (red line) crossing above the 50-day MA, with both MAs tracking higher.

When we checked in on SMH on March 26 (red arrow), though, a diverging pattern had caused SMH to reverse from its March 8 high.

Take another look:

VanEck Semiconductor ETF (SMH)

Source: eSignal

After retracing, SMH gapped higher on March 21 before again starting to slide.

Since then, SMH has continued in an ever-tightening sideways triangular pattern, as shown by the converging orange lines.

And the RSI is now testing support (red circle). Its next move will be crucial to where SMH heads from here.

So what should we look for next?

Looking for Clues

Momentum has fallen steadily since early March. So what happens now around support (green line) will be key…

The RSI breaking below support and into its lower band could set off a further leg down.

That’s why I’m also watching the MACD for clues.

SMH’s peak on March 8 coincided with the blue MACD line reversing sharply and crossing beneath the orange Signal line.

Since then, the MACD line has pulled the Signal line lower.

If this downward MACD pattern continues into next week, it will add extra confirmation that SMH is ready for a new leg down.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict