A burning question for traders right now: Is the long trading range in the chip-stock industry an indication that momentum has completely vanished? Or is the sleeping giant about to wake up in a major way? If the last week of strong price action is any indication, then the VanEck Semiconductor ETF (SMH) may be starting to awaken already. Through mid-day Wednesday, SMH is up six straight days and is touching levels last seen in July 2024. That means it’s now 5% away from its summer 2024 and all-time highs. That’s very encouraging. At the same time, SMH has experienced FIVE prior winning streaks of at least five since the middle of June’24 and has had nothing to show for it, at least not yet. In fact, SMH is net flat since June 14, 2024, which makes it a clear underperformer vs. many other growth-related indices and ETFs over the same period: ARKK +41%, MAGS +27%, SPX +12% and NDX +11%. However, “net flat” does not mean that SMH’s path has been directionless since last June. The ETF endured an epic drop through August and a methodical comeback from that point. That doesn’t sound overly encouraging on paper, but from a chart perspective, all of that has constructed one of the biggest and most constructive bullish patterns among the major ETFs — this seven-month cup and handle formation. And with its six-day winning streak, SMH now is breaking above the $263-resistance zone, which has triggered an upside target near 324.That amounts to a potential gain of 24% from said breakout zone. Needless to say, for SMH to hold above the breakout area over the near-term, it will need positive reactions to earnings over the next few weeks, especially from its biggest components. The top five holdings account for 51% of the ETF: NVDA 18%, TSM 13%, AVGO 10%, ASML 5% and AMAT 5%. The top three are either at, or close to, their respective highs, which clearly has benefited SMH. Despite the strong move over the last week and fresh pattern breakout, SMH still must prove this effort has staying power — like it did after nearly cracking in the fall of 2023. Indeed, the market, overall was on the precipice back then before turning higher. But given SMH’s influence, it was imperative to see it hold then — like it is again now. And back in October 2023, its key weekly moving averages (13-wk, 26-wk and 40-wk) were close to rolling over. This was a concern because that’s exactly what happened in early 2022: when SMH’s long-term positive momentum faded to start that year, those same moving averages did, in fact, roll over. And the bear market was upon us. Similarly, the recent slowdown naturally forced the weekly moving averages to fade again over the last few months. However, like we saw in October 2023, demand has resurfaced when it has needed to once more over the last few weeks. Therefore, for this resurgence to persist, SMH must respect the breakout, which will be reliant upon investors responding favorably to its holdings during earnings season, especially the biggest ones. If that happens, the odds of hitting the $324-target (and beyond) would increase, and the long-term moving averages would start trending higher again. That would be the best-case scenario. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
