SMH has turned completely negative: after nearly quadrupling from 165 in April 2025 to 671, it failed at 78.6% resistance with a bearish engulfing and falling weekly momentum; a break below 78.6% should pull the daily lower, with a likely early-November drop and a strong probability of decline into January 2027. A rally is likely to fail at the declining selling zone; a December bounce would be a chance to short before a sharp drop.

We will take a look at the SMH index and use it as a proxy for all semiconductor stocks.

So, we'll start by taking a look at SMH. This is a periodic analysis for those who watch the clip and are not familiar with our work.

Let's look at the weekly chart here, to understand this a little better. As I move here, you can see this main bottom. This is amazing because the bottom here was around 165, and that was back in April 2025.

So, we're looking at about a year and a half. The stock then rose to 671. The price has almost quadrupled, and this is probably the largest percentage gain I have seen in the semiconductor sector during my 52-year career.

This is a real-life example of how a commodity can go absolutely crazy, and in this case, semiconductor stocks did just that. Now remember that cycles move from one low level to another, and there is variation in them.

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One of the principles is called the inconsistency principle. What this simply means is that there is a time range between the bottoms . And sometimes it is absolutely accurate, just as you can see here .

You see that here, and this other one was late, as you can see. It may actually have been here because that left a small tail there. Therefore, each of these vertical lines shows you approximately where that low level could have been .

It could have been there, or it could have been here. Which one can be considered the bottom? It doesn't really matter, but once the "reversal detector"—sorry , I mean the " health bar"—turns upwards here, it confirms the low level, and then we know we are in a strong period of upward momentum until the trend reverses and goes through a corrective period.

Now, this is what's important for semiconductor stocks. This is a very strong transition . What this means is that this peak came on the far right side of the cycle. And you can see that swallowing pattern.

Japanese candlesticks often identify the high and low levels in cycles. We actually have a video about that in our cycle analysis workshop as well. So, here you can see an engulfing occurring in the downward direction.

An uptrend engulfment occurred. The upward shift here tells us that it is an upward trend. Because of this strong upward move , it suggests that it should have reached a new peak, but it did not .

As you can see, it stopped here at the resistance level at 78.6%. It dropped and then has now fallen to this level of 78.6%. This is a very negative event. Add to that the decline in momentum here on the “Reversal Detector”, and what that tells you is that semiconductor stocks have a very strong probability that they will move down to this time frame , which is January 2027.

So, this shows you a change in the current situation here, which means that if there is a rise in semiconductor stocks, it is likely to fail. This is the resistance zone located right here.

We will call it the selling zone, and it is in decline because this trend is in decline. Then if we get a rise or a recovery here at some point, which I think might happen in December, then we will have an opportunity to short sell semiconductor stocks. That's how we'll use that and look at it .

Remember, let me just look at both sides side by side here. Here I show you that the weekly momentum has turned downward. I'm telling you that when that happens and it falls below the 78.6% level, it will negatively affect the daily chart.

What you can see here on the daily chart is what happened; you can see the bottom of this cycle here, where it came almost on schedule . This course came late. And when there is all this selling pressure, it sometimes drops.

I got the rise, but then it moved to the left side. In other words, this cycle peaked very early and then fell to its lowest point . This is extremely negative again. This suggests that the price here is likely to fall to a lower level sometime in early November.

Then look here at the next cycle, which takes us to the end of November. Remember that we said this drop here is likely to come in January. Well, that might be in late December.

What that means is that you'll get some sort of bounce here. What will happen next is that it will peak and then drop sharply again in December. So here you see the thin strip that is changing, which has turned negative here.

He made this red. Here you can see the thin bar indicator (PO) giving a negative signal, telling you that the momentum is bad. Here you can see that while the rise was continuing , and I will zoom in on this for you to see , the Options Bias indicator was telling you here to keep your positions biased to the long side.

Interestingly, you got this island reversal there, and my downward shift on the reversal flashlight here, then this turned red, and then the options bias indicator here turns and says let's bias our options positions to the short side.

A truly amazing way to use all our information. As you can see, the picture has really turned completely negative for semiconductor stocks .