The VanEck Vectors Semiconductor ETF (SMH) has jumped 52.59% year-to-date and with marquee component Nvidia (NASDAQ: NVDA) set to report earnings late Thursday, Nov. 14, another potential catalyst is in place to lift SMH.
Integral to that thesis is repairing the damaged US/China trade relationship. Previously, President Trump said that the U.S. will eliminate any attachments with Chinese multinational technology company Huawei on Friday as well. The decision to block Huawei was arrived at after China stemmed from buying American agricultural products in retaliation for the president’s unexpected tariffs threat last week. China also permitted its currency to depreciate against the dollar to a key level unseen since 2008, likely in an effort to make Chinese exports cheaper and outperform U.S. products.
“If you look at the long-term chart here of SMH we’ve actually been channeling quite well,” said Todd Gordon, founder of TradingAnalysis.com, in an interview with CNBC. “We won’t see resistance until about $150 on the upside.”
Semiconductor has exhibited high sensitivity to the trade war because China is a strong driver for the chip-making sector, which includes several fast areas of growth including gaming and artificial intelligence. If the trade war is renewed, the barriers will raise costs for many of these multi-national companies.
The Chip Stocks Rally
Some market observers believe the rally in chip stocks can continue, particularly if investors remain enthusiastic about 5G. 5G technology will use a higher frequency band versus the current 4G technology standard, resulting in faster transmission of data.
“Look at names like AMD breaking a 20-year downtrend — I’m long the name and I’m looking to add, not take profits. Intel’s on the cusp of breaking out, so I think there’s a strong possibility we continue,” said Gordon. “We’re not going to fall into resistance until about $150 sourced all the way from the credit crisis lows, so I like the group higher.”
Advanced Micro Devices (NASDAQ: AMD) is another one of the more important members of the SMH roster. Shares of AMD reside at 14-year highs following the company’s recent bullish earnings update.
During the most recently completed quarter, “AMD reported earnings of 18 cents per share which was above analysts’ expectations and generated $1.8 billion in revenue which was up 9% year-over-year. Revenue was in-line with analysts’ expectations but was the highest quarterly revenue since 2005. The company also recorded its best gross margin since 2012 (43%),” notes InvestorPlace.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.