Semiconductors have led this market for almost two years. The upside move on the semiconductor ETF VanEck Vectors Semiconductor (NYSE:SMH) has been insane. However, in recent weeks something major has changed. The semis have rolled sharply, even as the stock market makes new all-time highs. This should be a big warning sign not just for the semis but for the entire market.
While end of year window dressing and light volume may keep the markets at all-time highs, it is likely there is trouble brewing in early 2018. In addition, the semiconductor index has a classic bear flag formation and is unable to get back over the daily 50 moving average. I have it penciled in that the semiconductor ETF SMH will see another big leg down in the first quarter of 2018, hitting $89.75. This is another 10% drop in the index. For investors, just simply compare the chart of the semis from before the start of 2016 to November 2017. Then compare and see the divergence in December. It is shocking. Note the chart below.
