Strange Signaling in the Semi Sector

As noted many times along the way since 2013 a reliable leadership progression in the US stock market has been this chain… Semi→Broader Tech→Broad Market (SPX). So let’s check up on it.

Ruh Roh, Semi/Tech is on the verge of a weekly breakdown below its formerly supportive moving average. That moving average is not a be-all, end-all but it is notable. Meanwhile Tech leadership continues to hold up relatively well.

Where it gets interesting though is that two premier Semi Equipment names are actually rallying vs. the broader Semi sector. Intel, Nvidia and some other prominent chip manufacturers have had a rough go lately, accounting for the disconnect as AMAT and LRCX rally this week.

But according to this graphic found on Twitter this week (@AndreasSteno) the Semi YoY is going to lead world stocks down hard. So what are AMAT and LRCX doing? They are the ultimate forward lookers as we have noted since the 2013 Equipment sector upturn. But are they acting very early cyclical or just leading people astray?

A reminder of what my industry contact had to say as of April 10th…

Gary,

Hope all is well.

Sorry it took so long to respond. Your e-mail was buried, and I just uncovered it.

Anyway, the semi business is off in my opinion about 50% which is much more than we expected back in September 2018. The 4th quarter of 2018 felt like the 2008 economy melt down. Layoffs, shutdowns and still not back. The word now is we should start seeing an increase 2nd half of 2019 and it should be at levels close to where it was back in early 2017. That’s the word on the street but, in my opinion,  I don’t think so but what do I know.

Stay well,

Gary

Old news? Well, not according to the latest blog at SEMI

2019 Outlook

While initial forecasts for 2019 semiconductor revenue growth averaged in the low single-digits, recent industry data has prompted multiple restatements with projections ranging from -7 percent to -3 percent growth. The bearish outlook is supported by weakening 2019 monthly data for silicon shipments, mass flow controllers, leadframes, and semiconductor equipment. With these dampened expectations for the device market, SEMI projects that the semiconductor materials market will grow 2 percent this year. The outlook for the semiconductor equipment market is also negative due to recent capital expenditure announcements. If the 2019 forecast for equipment market growth in the low negative teens materializes, the equipment market will roughly match 2017 growth.

So as to the first two charts I ask you, what’s real and what’s Memorex? Hmm?

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