CashNews.co
Key Takeaways
- The VanEck Semiconductor ETF remains in the spotlight on Wednesday after tumbling more than 7% yesterday to register its largest daily percentage decline since March 2020 amid a broad-based selloff in chip stocks.
- A relief rally in the fund recently stalled at the 50-day moving average, with Tuesday’s drop taking place on the highest daily volume since early August, pointing to conviction behind the move from larger market participants.
- Amid further weakness in the ETF’s price, investors should monitor key chart levels at $217, $200, $176, and $161.
The VanEck Semiconductor ETF (SMH) remains in the spotlight on Wednesday after tumbling more than 7% yesterday to register its largest daily percentage decline since March 2020 amid a broad-based selloff in chip stocks. The top-weighted stock in the fund, artificial intelligence (AI) darling Nvidia (NVDA), led the sell-off, slumping nearly 10%, while other leading chipmakers in the ETF’s portfolio, including Intel (INTC), Marvell Technology (MRVL) and Micron (MU), all dropped by around 8%.
The chips sector has seen significant gains over the past year, as AI’s widespread adoption bolsters demand. Volatility across the group has increased in recent trading sessions after Nvidia reported earnings that topped Wall Street estimates but showed that growth is slowing.
Below, we’ll take a closer look at the ETF’s chart and use technical analysis to identify important levels to watch out for amid increasing price fluctuations in chip stocks.
Recovery Stalls at 50-Day Moving Average
Since forming a double top in June and July, the fund’s price suffered a significant correction before staging a relief rally from the closely-watched 200-day moving average (MA).
However, more recently, investors resumed selling on a retracement to the 50-day MA, with Tuesday’s drop taking place on the highest daily trading volume since early August, pointing to conviction behind the move from larger market participants.
After falling 7.5% on Tuesday, SMH was down another 1.4% to $222.00 in premarket trading Wednesday at around 7:15 a.m. ET.
Monitor These Key Chart Levels
Looking ahead, investors should eye four key price levels on the ETF’s chart that could prove pivotal if weakness across the chip sector continues.
The first sits around $217, a level on the chart where the fund could find initial support near the March pullback low, which also currently closely aligns with the rising 200-day MA and a range of trading activity positioned near last month’s low.
A breakdown below this level could see the ETF’s price decline to the $200 area, where it may encounter buying interest around the prominent April and August troughs. Last month’s low marks a technically important level, given the fund’s significant intraday reversal from this chart region.
The next lower price level to watch lies at $176, a location where the ETF could attract support from the December high that formed early in the stock’s up-trending move from October to March.
A more protracted correction may see the ETF revisit lower support around $161. This area could entice longer-term buy-and-hold investors seeking entry points near a range of comparable trading levels on the chart between July and December last year.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.
As of the date this article was written, the author does not own any of the above securities.