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Hey everybody, . In today's video, we're going to deep dive into the semiconductor index, the SMH, as well as Nvidia and Broadcom, the two 1 trillion plus dollar companies that make up that sector. And the idea here is we know where the semis go, the markets will follow. And that's been an old adage that has been used for decades in regards to the semiconductors.
So where do the semis go? Is it telling us they're going to roll over? Is it telling us they're going to push higher? Let's dive into the charts. All right, so first and foremost, what we see here is starting in July on the SMH, which is the semiconductor ETF, we see a lot of sideways chop, right? So basically, you haven't been breaking down, but you certainly haven't been breaking to the upside.
The one thing that I see is look at this base point here. We can really connect all of the recent lows going back to basically July 14th. Notice pivot low, pivot low. Here it pierced but closed above. Here it kissed the line, hit the line, hit the line, and so on and so forth. Each time we have been seeing a bounce, but one of the things we know in technical analysis is the more we hit a trend line, the weaker it becomes.
And it's hit officially once, twice, three times, four times, five times. Which means if we come back down again, the odds for a break down are favored with about a 70% margin. All right, 70% margin that we would have a break lower. And that's a pretty high probability when it comes to investing. All right.
Now, the big question is, well, why has this level been determined to be support at 281 to 282 on the SMH? And I think this is really fascinating, folks. Is if you zoom out on the chart, look at where this trend line goes. It goes all the way back to the prior all-time high from 2024 before the latest correction.
And this is a theme that is very normal in technical analysis is that former resistance now becomes support. So it was resistance, rejected, hits, rejected, then comes back down. Here it comes up, kind of kisses, pulls back, and finally breaks above. Once it breaks above, the resistance now becomes support.
And you can see how it hits over and over again on the downside. So we are holding support on the SM, which we have to respect. Listen, no matter what you may think about the markets with valuations, the charts are the truthteller to us as technicians. So what we're looking for here is if we want to see whether or not the SMH really breaks down, the semiconductors break down, then what do we do?
We follow this level on the SMH. If price gets below this level, you start a bigger drop on the SMH, the semiconductors that likes you likely takes you down into this zone. And you can see how again this was former resistance over here as well. Look at the trend line we could put in just right across here.
You have this high, this high, this high. It briefly got above, then got rejected again, kissed it here, came up right here. Look at how it just hammers, hammers, hammers, hammers, and breaks out. And so the key here is understanding that if the S& let's say 28150, we then drop all the way down to about 263, which would be your next support level.
All right. So, that is something that I'm keeping a close eye on in regards to the semiconductors. Okay. So, again, just to be clear, yes, the semis have stalled out. Yes, the SMH is showing potential signs of weakness. Has it broken down? The answer is no, it has not. Now, that that's different for certain stocks, right?
So for instance, if we flip over to something like Nvidia and we zoom out, Nvidia has broken a key ups sloping trend line. So this one has broken and we can see that percentage- wise this has actually fallen more than the semiconductors, right? I mean here you have a drop based on percentages and let's do our percentages here from the high on Nvidia which actually was right over here to the low well even just to where it closed.
It's about a 10% drop on the on Nvidia. If we look here at the semiconductors, what do we see? Well, we see very clearly that the semiconductors overall are only down 3.3% from their all-time high. And now, what does that tell us? It tells us that Nvidia is no longer the favored child of the semiconductors.
What company has now become the favored child, but still may have put in a top? The answer is Broadcom. Broadcom again. You can see, and by the way, I went over this in my trading game plan. I gave this exact short level just like you see it here in that. And look at I mean, this was a great trade on Friday, folks.
Great great trade on Friday. Good to the tune of almost $20 in downside from the gap up on uh Friday on earnings. But the point being is Broadcom has made a new all-time high just on this day, while Nvidia is now down 10%. And so there certainly is a certain amount of money flow that's coming from Nvidia exiting Nvidia and finding its way to Broadcom and a few other select um uh semiconductors.
Now one of those semiconductors here is this one. I mean look at this chart Western Digital. Now Western Digital isn't a flashy one. It's not super AI but again it is seeing a res this low. Look at the recent move here in WDC. Uh that's the symbol by the way. Incredible move. Now this was a dogee on Friday.
So, this may mark a short-term top, but you can see how Nvidia has certainly lagged. Now, Nvidia breaking this trend line. That was the start, right? And again, I love trend lines because it really does tell us when something is going to break to the downside or the upside. All right, a breakout. For instance, look at this.
Here is your former high from 2024 with your double top right there. Price on Nvidia came all the way down. It comes up here, closes above, confirms, retraces, holds support, and then off to the races it goes. This new trend line was formed here. We can even trade change the trend line uh to an orange color to make it differentiate.
Here's your breakdown, and you can see again how it fades. Now, Nvidia, your downside, you're looking at about 153. That's going to be just like we just talked about on SMH. That's your former high pivot. That would be expected to be major support. So around 153 is your downside target on Nvidia in the near term.
All right. Now, listen, that doesn't mean Nvidia can't go lower. I want to be crystal clear on that. Nvidia can go lower than that. But in the very least, you would expect a solid bounce off of 153, maybe the tune of 5 to 10% before it rolls over and breaks down. And that's if it even does break down.
The good thing about trend lines is we defined trend line, right? So if we go back to the chart here on Nvidia, we know this is support. If it ever confirms below this level, then okay, game on for further downside. But the idea is this here should be a bounce level based on technical analysis. In other words, it means that probability should price come down here would favor a bounce.
And I might even be looking at some trading opportunities on Nvidia at this level. Okay. All right. So let's go to the Broadcom chart because I think the Broadcom chart is really important here to understand. So Broadcom gapped up. It still ended up about 9.4%. So great day on on Broadcom on the back of earnings, but the price action was not good.
What do I mean by that? Well, number one, it gapped up into a longerterm trend line. And really, it opened at the highs and closed at the lows. That's never a good thing when you have good news on the stock, right? It basically tells you and and the volume was intense. I mean, I don't have the volume candles down here, but this was massive volume.
When you get that scenario, it tells you that institutional money is starting to unload heavily. And that, my friends, is something that we have to as technicians pay attention to. Anytime a stock gaps up to new all-time highs and close at the lows with a big red candle, that is a marker or a flashing light that tells us again there is trouble brewing.
Great example of this, by the way, is Microsoft. Microsoft on earnings gapped up, closed at the lows. Look at the price action since then. And so while Broadcom AVGO, you know, is at basically still pretty much near all-time highs here with a great gap up on earnings and earnings were great, the price action here would give you a negative bias on Broadcom.
Now, we have to put the the pieces of the puzzle together, right? If Broadcom has a negative bias and that's the one at the all-time highs and then Nvidia, Nvidia we know is weak and it's likely going here. What does it tell us about support here on the SMH? The answer is that while it hasn't broken down on the semiconductors, the odds do favor a breakdown at some point based on the price action of Nvidia and Broadcom.
Now, you might say, well, what about WDC, Western Digital? I mean that's at the highs and that didn't put in a reversal red candle. It did put in a dogee which is a minor negative signal. But the key is Western Digital is a very minute company compared to the 1.5 trillion of Broadcom and the 4.5 trillion of Nvidia.
So really Nvidia and Broadcom they are the ruling the roost for all of semiconductors and the SMH. And the reason why the SMH is only 3% off its highs, but it did. So, so the question here is, and this is a great question to ask, and this will be the final thing I tell you guys about, right? So, the answer, you know, you say, well, why is the SMH only down 3.3%.
And the answer is because Broadcom comes at an all-time high and Nvidia is down 10%. So, what's the midpoint there? Basically, down 3.3% on the SMH. And that's what I mean by the SMH essentially the semiconductor ETF is your guide to essentially those two stocks. They are so massive in market cap $6 trillion in market cap between the two of them that that is essentially what the SMH is representing regardless of what Western Digital is doing or any of these others.
Now yes you have AMD by the way got slaughtered on Friday as well. That's a big company but still nothing compared to these other ones. All right, guys. So again, near-term to summarize, SMH has not broken down. However, between the Broadcom daily chart and the Nvidia week chart here, so reversal signal on Broadcom daily, even though it's at basically all-time highs, and Nvidia's breakdown and weakness, the answer is is that over the next, let's say, few weeks, I would expect the SMH to break 281 and 50 or so and head down to 263 target.
All right, that's what I wanted to go over today. Really good educational stuff here. Nuggets of information. As always, folks, I give you everything I have right up in here because, as you guys know, verified investing is all about truthtelling. All right, no BS, just technicals and charts so that you guys get a clear picture versus what the hype is being po pumped out there on social media or the hype or narratives on mainstream media.
I really want to be the beacon of light, if you will. And listen, it doesn't mean I'm always right. Please understand that I'm not always right, but we know it's a probability game. And so, if we listen to the charts and we read the charts properly, we get the cleanest information and then we can get our our win rate, let's say, to 75%.
And that's gold standard type stuff. You guys have a great one. Thanks so much, guys, for being members or being followers of Verified Investing. Have a good one. Take
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