Semiconductors Down 9 Straight Days: Is an Oversold Snapback Coming?

Tech Takes the Hit as Money Rotates to Defense

Heavy selling of technology stocks weighed on the Nasdaq, which retreated 4.5% for the week, ending 5.3% below the record high it set on October 6. The S&P 500 fell 1.9%.

A rotation away from AI-related stocks and chipmakers weighed on U.S. large-cap growth stocks, while relative strength in health care and traditionally defensive sectors lifted the value equity style. A growth benchmark finished the week down 5.0%, while its value counterpart climbed 0.9%. October has thus far lived up to its spooky reputation for market uncertainty.

Beneath the surface, sector performance points to a much more cautious tone. For the full year, energy and technology still lead the pack, with both sectors up more than 20%. However, in October thus far, energy has maintained its lead but has been followed by defensive areas such as consumer staples, health care and utilities. Technology has been the worst performer for the month, falling into negative territory.

Oil, Yields and Global Chip Pressure

The decline in oil prices seen since mid-September reversed course, with U.S. crude rising more than 8% for the week and back above $100 per barrel on Friday. The shift came amid uncertainty over Middle East supplies and a larger-than-expected withdrawal from U.S. crude stockpiles. Even with the latest price rise, U.S. crude remained below a recent high of nearly $106 set on September 15.

Yields of longer-dated U.S. Treasury debt fell for the second week in a row, with the 10-year Treasury ending the week at 5.08%, down from 5.24% the previous week. The 30-year yield was also down sharply at 5.43% from 5.60%. In contrast, shorter duration yields fell modestly, with the 2-year Treasury at 4.72% versus 4.79% the prior week.

The major South Korean stock index dropped more than 14%, with the weekly sell-off driven largely by declines in the shares of the nation’s chipmakers and AI-related stocks. As of Friday, the index had fallen almost 38% since June, when it reached a record high.

Support Levels and the Snapback Setup

Technically, the sharp slide on Friday left the indices near key chart support levels and put them in a vulnerable position for additional downside tests, should those levels be immediately violated. However, on a short-term basis the indices appear somewhat oversold, with the SMH (Semiconductor index) down 9 days in a row.

If they are unable to snap back early next week, current downside momentum could violate near-term support and extend the slide even further to a more deeply oversold condition. If that does occur, we’ll be looking for oscillator and intraday tick levels to reach deeper extremes to set up a stronger snapback retest rally.

Key technical levels to watch this coming week appear to be S&P 500 (SPX) support near 7,515-20, 7,500-07 and, if violated, possibly 7,300-15. Chart resistance is seen near 7,550-55, 7,790-7,800 and the 7,820-45 zone. For the Nasdaq 100 (NDX), support is near 28,750, 28,200 and possibly 27,175-200, with resistance at 29,865-900, 30,500-600 and 31,500-700.

In any case, as we always do at TheTechTrader.com, we will “Trade What We See, Not What We Think.”

HARRY BOXER, THE TECHNICAL TRADER | www.thetechtrader.com