The S&P 500 traded in a very tight range yesterday…as investors waited for today’s CPI report. This is basically what took place last Thursday…when the market didn’t do much before Friday’s employment report. So, it was not a big surprise…..However, the Nasdaq and the Russell 2000 both did see some weakness as the tech sector took it on the chin. This weakness in the tech sector was led by the chip stocks…as Micron (MU) made a negative pre-announcement about their earnings. This followed Nvidia’s (NVDA) pre-announcement on Monday…and it sent the SMH semiconductor ETF lower by more than 4%.
This move in the chip stocks is an important development. As we highlighted in our weekend piece, the SMH was testing its early June highs…and it needed to break above those highs (and give it a key “higher-high”) if the group is going to see some more upside follow-through from its July rally. Instead, with yesterday’s significant drop, it looks like the SMH is going to fail at its key technical juncture. This is not good for the group…and given that the semis are an incredibly important leadership group for the broad stock market…it’s a negative development on several levels.
Having said all this, the SMH has only been falling for two days. If it can bounce-back quickly, the situation can be rescued. However, given that MU, NVDA, AMD, INTC, QCOM and several other chip companies have either reported lower-than-expected earnings or warned about their prospects for the rest of this year (or both), it’s going to be very difficult for this group to bounce back. (We thought the comment from the MU CEO…who said yesterday that things have turned down decidedly in the last month…was very telling.)
HOWEVER, we get the all-important CPI inflation number this morning. If that ...