Sister Semiconductors is a character and leading sector in the Economic Modern Family.
We use the ETF VanEck Semiconductor ETF (NASDAQ:SMH) to represent her contribution to the market, family, and economy.
The cartoon you see certainly reflects some of her Wonder Woman like superpowers as I created the image from AI.
Yes, AI. Cool, huh?
The immortal 2 words (Artificial Intelligence) companies like Alphabet Inc (NASDAQ:GOOGL) now attach to their menu of future deliverables to become, well, immortal in a very dull, sideways market.
I mention Immortal as Wonder Woman is just that.
Related to our Sister Semiconductors, SMH has single-handedly held up the market over the last 3 months.
However, humans beware-just how hot is AI?
Heard on CNBC Friday:
"The safety risks around AI are huge, and we think there is a more than 50/50 chance AI will wipe out all of humanity by the middle of the century" - BCA Research
And, as the monthly chart of SMH illustrates, it is the only Modern Family sector that has cleared the 23-month or 2-year business cycle over the last 2 months.
SMH precariously sits right on that blue line with 2 weeks left in May.
Will she remain immortal?
Just compare our Sister to her Granddad Russell 2000 (IWM).
iShares Russell 2000 ETF (NYSE:IWM), or the Granddaddy of the US economy, reaches out to SMH for a lifeline.
In the next 2 weeks, we will also be looking for IWM to hold the 80-month moving average or green line. This is a 6–8-year business cycle indicator.
If SMH successfully holds up, IWM has a chance of proving the gloomers wrong by averting the deep recession calls.
That would keep IWM in the game and potentially establish a much more solid low-risk point in this persistent trading range of 2023.
It is possible for IWM to hold up even if SMH does not, especially if the Fed pauses and the politicos play nice and divert a debt default.
However, if the fate of small caps does indeed rest in the hands of his granddaughter SMH, what does she have to do to make that happen?
On the Daily chart, SMH trades in a caution phase. The 50-DMA is stacked above the 200-DMA green, and the price is between the 50-DMA (blue) and the 200-DMA.
What the caution phase tells us is that SMH is loosening her grip. The Real Motion Indicator also suggests momentum is waning alongside price.
Nonetheless, we have seen caution phases return to bullish phases.
The bottom line, based on the stagflation theory and the overall market stagnating in a trading range, SMH will be on our radar.
Our Sector Rotation Model has remained long semiconductors since January. That, too, will be an interesting tell as the model will likely rotate out at a profit if the sector weakens further.
ETF Summary
- S&P 500 (SPY) 23-month MA 420
- Russell 2000 (IWM) 170 support - 180 resistance
- Dow (DIA) Now below the 23-month MA
- Nasdaq (QQQ) 329 the 23-month MA
- Regional banks (KRE) 42 now pivotal resistance-holding last Thurs low
- Semiconductors (SMH) 23-month MA at 124
- Transportation (IYT) 202-240 biggest range to watch
- Biotechnology (IBB) 121-135 range to watch from monthly charts
- Retail (XRT) 56-75 trading range to break one way or another