PHLX Semiconductor Index break below key trendline signals pressure on AI chip trade

Traders Union
All News
Stocks
Semiconductor Index breaks trendline

Highlights

PHLX Semiconductor Index broke below a key trendline, with prior similar breaks since 1995 leading to median 2.47% decline over 50 days.
BTIG data shows SOX buyers from May to October are underwater, creating six months of overhead supply unlikely to resolve quickly.
Chief technician Jonathan Krinsky suggests a drop toward the April breakout zone of 8,000–8,300 may be needed to fully retrace recent AI chip sector gains.

BTIG data points to mixed short-term path

As reported by CNBC, citing BTIG, comparable breaks in the SOX since 1995 have often produced uneven performance after the initial technical damage. The firm says the index falls an average of 0.8% over the next five trading days in similar episodes, then posts average gains of 4.25% after 10 days, 3.09% after 20 days, 2.95% after 30 days and 0.77% after 40 days.

Jonathan Krinsky, chief market technician at BTIG, says early rebounds after similar cracks can be strong, but the broader pattern is far less convincing. In a note on Sunday, he writes that the setup is "essentially a coin-toss," adding that 50-day returns have historically been negative.

By the 50-day mark, the SOX is higher in only 44% of cases, according to the BTIG analysis. The average return across all measured periods is negative 0.32%, while the median decline is 2.47%.

Investor positioning adds to sector risk

The technical break comes after broad selling and an unwind in semiconductor and AI stocks, at a time when investors are questioning whether large data center outlays will generate sufficient returns. That concern is weighing on one of the market's most important AI-linked trades.

Krinsky says it may be late to press a tactical downside call at current levels, but he flags a larger overhang in investor positioning. Investors who buy semiconductor stocks between May and October are now underwater, creating what he describes as six months of overhead supply that is unlikely to be cleared quickly.

He continues to argue that a move back toward the April breakout area of 8,000 to 8,300 is necessary. In his view, such a retreat would fully retrace the sector's earlier parabolic advance.

Micron’s recent technical breakdown signaled that the post-rally move was losing steam, with the stock slipping below a rising wedge and momentum gauges like RSI and MACD turning lower. Our earlier article outlined key downside levels to watch and noted that the bearish setup would likely persist unless Micron reclaimed major resistance on a weekly close.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.