The Semiconductor Selloff Could Be About To Get Much Worse

By Michael J. Kramer of Mott Capital Management

Founder/CEO at Mott Capital Management, LLC • Oct 22, 2026 at 8:10 PM EDT

The semiconductor sector is testing key support levels, threatening to accelerate a broader market rotation.

It looked like a rough day for stocks, with the S&P 500 down more than 1% and the Nasdaq down almost 3%. However, the RSP, the equal-weight S&P 500 ETF, was up more than 70 basis points. This ties back to what we discussed a week or two ago about a potential rotation in the market, given the triple-top pattern forming in the SPY-to-RSP ratio. So far, the pattern hasn’t fully played out, and I’m guessing we could see the ratio move even lower.

Daily chart of SPY/RSP ratio, April 2025 to October 2026, closing at 3.50, down 1.90%, oscillating between 3.15 and 3.70 support/resistance lines, with RSI(14) below showing fluctuations between 30 and 80

The SMH was down sharply and is nearing its July lows, which appear to be an important support level. If that level breaks, I could imagine it creating a bigger problem for the entire market, given how momentum-driven it has been.

TradingView daily chart of VanEck Semiconductor ETF, down 5.99% to 523.35, falling toward 569.46 support, RSI at 31.62 nearing oversold

The KOSPI shows this a bit better, and to be fair, it has been an excellent leading indicator for the SMH. So tonight may very well determine whether or not the sector breaks down. The KOSPI chart looks really bad, and I would not be surprised at all if it fell further.

Daily chart of Korea Composite Stock Price Index rising from 4,000 to peak near 9,200 then falling to 5,533.78, down 3.52%, breaking below a wedge pattern and support near 6,380 and 5,602, with RSI dropping to 30.78, indicating oversold momentum

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