It will happen very fast!

 

 

 

 

A Parabolic Semiconductor Rally Will End Badly

 Roberts Lance 

The chart of the day says everything. The VanEck Semiconductor ETF (SMH) closed Tuesday at $596.94, while its 50-month moving average sits at $222.30. That puts the fund 168% above the trend-following line that has tracked the sector cleanly through every cycle since 2002. The parabolic semiconductor rally has reached the kind of technical extreme that historically marks the back end of cycles, not the middle.

In addition, Bank of America’s technical desk just flagged the weekly RSI above 80 for the second straight week. According to their work, that’s an all-time high reading and only the fifth such instance since 2012. The signal matters because it doesn’t appear in healthy uptrends. It appears at the back end of them.

  

 

 

The 50-month moving average is the trend. Notice in the chart below how cleanly the 50-MMA has tracked SMH through every cycle since 2002. Each prior overshoot, in 2018, 2021, and 2024, mean-reverted back toward that 50-MMA line within 12 to 24 months. That’s the line worth watching. For context, the prior cyclical peaks ran roughly 50% to 95% above the 50-MMA. The current reading nearly doubles the previous record high, set in early 2022.

Of course, that parabolic shape is not opinion. It is the literal geometry of a price series accelerating away from every reasonable mean. Importantly, parabolic moves do not unwind through gentle consolidation. They unwind through air pockets because the marginal buyer has already bought. 

   

 One pattern holds across every entry on the chart. In every downturn, the semiconductor index drops harder and faster than the S&P 500. For example, in 2022, SOXX fell 35% on a calendar-year basis while the S&P 500 dropped roughly 18%.^[4] The sector’s higher beta cuts both ways. It amplifies gains during accumulation and amplifies losses during distribution. Today, with the trade this crowded and the technicals this extreme, the probability of a sharp distribution event is materially higher than at any point in the cycle so far.