The Canary

The Canary

October 16, 2019 Off By Chuck

I have written many times in the past about how the semiconductor index, SMH, is an excellent tell on the current strength of the US Stock market and investors willingness to take on risk. The semis tend to be leaders (the proverbial canary in the coal mine) in both up and downtrends so it’s an excellent vehicle to get an “early” take on which way the market will go if it’s in consolidation (which it currently is).

As you can see in the longer-term, weekly chart of SMH, the 50-day moving average has a positive slope and sits above a rising 200- day moving average. With price sitting above both moving averages, this is exactly how bull markets (uptrends) are supposed to look. When you combine this with the fact this week the index broke out to new, all-time highs and of course is making higher highs and higher lows, the message is clear. The current setup in the semiconductor index is making one heck of a bullish argument to be invested in US stocks regardless of the external daily noise trying to divert your attention away from their message.

As usual, the semi stocks are leading the rest of the market and the broader US stock market has yet to confirm the strong bullish argument. It seems logical based upon historical patterns that if the semis hold this week’s breakout and continue higher, it would be expected to see new highs for the broader US stock indexes not too far in the distant future. The argument becomes even stronger when combined with the fast-approaching bullish seasonal time of year.