Semiconductor stocks could be ready to cool down.
The PHLX Semiconductor Sector Index and VanEck Vectors Semiconductor ETF (SMH) set all-time highs on Thursday, extending their best start to a year since 2003, according to research from Bespoke Investments Group.
The work-from-home-fueled rally may soon hit a wall, however, Miller Tabak chief market strategist Matt Maley said Thursday on CNBC’s “Trading Nation.”
While insisting he was “not calling for a major top by any stretch of the imagination” given his positive long-term outlook on the group, he said “they’ve just gotten so incredibly overbought that I think they’re due for a breather.”
The PHLX index, for one, is trading at a nearly 100% premium to its 200-week moving average, Maley said, referencing the above chart.
“You’ve got to go all the way back to the dot-com bubble in early 2000 to see anything close to that kind of a premium,” he said.
Taiwan Semiconductor, which takes up nearly 14% of the SMH ETF’s portfolio — more than double any other holding — is the most overbought it has ever been, Maley said.
“Its RSI, relative strength index, is at 90. It’s never been that high. It wasn’t even that overbought back in 2000. So, these things are getting due for a bit of a pullback,” the strategist said. “It would be normal. It would be healthy. So, what I’m saying is that short-term traders should maybe take a few chips off the table and long-term traders should hold off being aggressive at these levels. They can buy them at cheaper levels, I think, in the weeks ahead.”
Nancy Tengler, chief investment officer of Laffer Tengler Investments, is watching three stocks in the space.
“We would be focused on a stock that we do own, Lam Research,” which also hit a record in Thursday’s trading session, she said in the same interview.
Lam Research is still far from her firm’s sell level based on its price-to-sales ratio relative to the S&P 500, Tengler added in a note to CNBC. Laffer Tengler’s sell point is marked below in orange; its buy point is in green.
Taiwan Semiconductor’s announcement that it plans to raise $25 billion to $28 billion in capital expenditures this year would also benefit the stock, Tengler said, noting its 6% surge to all-time highs on Thursday.
“We’d wait for Matt’s pullback, because we think he’s right — they’re due for a breather — and then that would be a time when we’d add more funds to that name,” Tengler said.
She also suggested taking “a fresh look” at Intel given the company’s CEO shake-up announced this week. VMware CEO Pat Gelsinger is succeeding Bob Swan as Intel CEO.
“We’ve got new, great management that will also be bullish for Taiwan Semi because we think this CEO will be more likely to outsource to Taiwan Semi, which will also benefit Lam,” Tengler said.
Disclosure: Tengler and Laffer Tengler Investments own shares of Taiwan Semiconductor, Lam Research and Intel.
