Semiconductors lead the way higher. Where do they fit in your portfolio as we move into Q3?
Things just feel easier when semiconductors are doing well. While deciphering markets certainly isn’t truly any less difficult during one leadership regime over another, a strong semiconductor group can certainly be quite compelling. Perhaps due to recency bias of 2023 & 2024, watching representatives like SMH storm ferociously back to challenge all-time highs gives merit to the idea that growth names, particularly those driving artificial intelligence, are in the driver’s seat. All that said, it can certainly feel intimidating opening/adding to positions as we sit just three months away from 2025 lows. Today’s pulse will briefly discuss how you might look to approach the sector within your portfolio and highlight how you can source names that might look attractive.
We opened today’s piece with a brief comment on semiconductor’s dominance in 2023 & 2024. Participation today actually clocks in at a higher mark as of June 27th than at any point since late 2021, seeing ^BPSEMI sit at 70% as we wrap up the second quarter. Said more plainly, roughly seven of every 10 semi stocks trade on a PnF buy signal, now well above washed out territory (6%) from the start of April. This reading is tied with Gas Utilities as the highest Bullish Percent readings across the 41 different NDW sectors- another feather in the cap as upside participation continues to improve.
Having advanced notably off 2025 lows, representative SMH sits extended well on a column of X’s as it sits at all-time chart highs around $280. Holding a strong 4.48 fund score, the only true gripe with the fund here is the lack of support nearby- it now sits roughly 33% away from the next level of “traditional” PnF support at $186. Regardless, more sensitive charts (3-point, not pictured below) suggests a range of viable support around $237… nearby but still a ways away. In these kinds of scenarios, we typically suggest waiting for a bit of normalization, although more aggressive clients are still broadly fine to dip your toes in on this stem.
Commentary for most of the larger names you might be thinking of when semiconductors are mentioned (NVDA, AVGO, AMD, TSM etc.) is largely the same. Upside action has been swift and most are vastly overextended around current levels. Again, we would expect some normalization in the near-term. While similarly overbought, KLA Corp KLAC continues to demonstrate impressive technical leadership within the semiconductor sector, breaking back into positive trend as of April and storming to new all-time highs in mid-June. This coincides with the name developing a clearer technical picture, supported by strong long-term relative buy signals against the market SPXEWI since 2011 and against semiconductor peers since 2019. Up nearly 40% this year, the perfect 5/5’er sits in the third position within the semiconductor sector matrix. The recent reversal back into X’s helps solidify some localized support above prior resistance… a net positive as the name is a tad overbought here. Those seeking exposure to this semiconductor leader may consider waiting for the trading range to normalize through pullbacks to said support, or confirmation of continued upside momentum with a break to new highs at $928. Use the alarm clock button to be notified of any changes.
