Semis Drop The Mic

The rally in semiconductors is starting to run out of superlatives to describe it. Just when you think it has to take a breather, it turns around and rallies another few percent. Yesterday, the Philadelphia Semiconductor Index (SOX) closed more than 17% above its 50-day moving average and 36% above its 200-DMA. Regarding the 50-DMA, it hasn’t even traded down to within 3% of that level in the last 80 trading days. In fact, the only time it has even traded within 4% of its 50-DMA since mid-November was on 12/6 when it closed 3.99% above that level.

The chart below shows streaks where the SOX closed at least 3% above its 50-DMA, and the current streak ranks as the longest since the days coming out of Covid and just the fifth in the index’s history since 1994. The longest streak ended at 143 trading days in August 1995. In looking at the four prior streaks, once they reached the 80-day point, the forward one-year performance of the SOX was mixed with a median gain of just 3.1% and positive returns just twice.

Yesterday was a monumental day for the semiconductor sector because it was also the first time in its history that the index closed at a higher price than the S&P 500. It got close in 1999 but never quite got there. The rally in semis over the last few years has been nothing short of amazing, but the slope of the ascent in the ratio (i.e. relative strength of semis) back in 1999 and early 2000 was practically a straight line!

As mentioned above, SOX is currently trading more than 36% above its 200-DMA, and within the index, there are some incredibly wide spreads. As shown in the chart below, Nvidia (NVDA) closed more than 90% above its 200-DMA yesterday, and another three stocks -- Advanced Micro (AMD), Coherent (COHR), and Taiwan Semiconductor (TSM) -- are all more than 50% above their 200-DMAs.

In the case of NVDA, 90% above the 200-DMA???? A lot of traders looking at a spread that wide would probably start thinking about shorting a stock. We’d be the first to agree that a spread that wide seems unsustainable in most cases. However, you only have to go back 10 months to find the last time NVDA was more than 100% above its 200-DMA, and back then the price was under $400, or 60% below current levels! One thing to keep in mind regarding NVDA is that its rally has been described as a once-in-a-generation type of gain, and while these types of moves don't come around all the time, as we noted earlier today, NVDA's performance over the last 350 trading days since its 2022 lows still trails the gain Tesla (TSLA) experienced coming out of the Covid-crash lows.

More By This Author:

The Ludicrous List
Overwhelmingly Bullish, Even For All Time Highs
Semis In Uncharted Territory

Disclaimer: Bespoke Investment Group, LLC believes all information contained in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any ...

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