$SMH · Steve Miller · 2026-10-31

We will look at the SMH index and use it as a primary proxy for all semiconductor stocks. I'm going to show you seven of them, and I think we're looking at a rather cautionary picture regarding semiconductors.

Of course, the prices of these stocks have been significantly increased during the current artificial intelligence craze. And certainly, there is a huge demand for them.

The problem is that semiconductors are commodities, and in my 52-year career as a trader , I have seen many times these stocks have risen dramatically, then become expensive and started to decline.

There began to be a sense that the buying spree we had seen in this massive circular investment in artificial intelligence was going to slow down, or that there was too much competition in the market.

So, the picture changed and actually became worse . I'll explain that to you as we take a look at this . We will start by looking at the SMH index.

Let's look at the weekly chart here, so you can 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 price then rose to 671 . The value has quadrupled, and this is probably the largest percentage gain I have seen in semiconductors during my 52-year career .

So, this is a real-world example of how a commodity can go completely crazy, and in this case, semiconductor stocks did just that.

Now remember that cycles move from bottom to bottom, and there is variation in them. If you have studied the Course Analysis Workshop, for which we currently have a special offer, you can visit asklim.com and see this offer at the top right of the homepage.

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

You see it here, and what you see was at a later time. And it may already have been here, because that left a small tail there. So, each of these vertical lines roughly tells you where this bottom could have been.

He could have been there, or he could have been here.

Which of them can be measured as a bottom? It doesn't really matter, but once the "reversal flashlight" points upwards here, it confirms the bottom, and we then know that we are in a strong period of upward momentum until it reverses and goes through a corrective period.

Now, this is what's important for semiconductor stocks. This is a very powerful shift.

What this means is that this peak came on the far right side of the cycle. And you can see this swallowing pattern. Japanese candlesticks often identify the tops and bottoms in cycles.

We actually have a video about that in our cycle analysis workshop as well. Here you can see that it swallowed on the way down and swallowed on the way up. The upward trend here tells us that it is an upward movement.

Because of this strong upward shift, it was expected to record a new high, but it did not. It is seen that it stopped here at the resistance level at 78.6%. It dropped and has now reached this level of 78.6%.

This is a very negative event. Add to that the momentum reversal here in the “Reversal Spotlight,” and what that tells you is that semiconductor stocks have a very high probability of moving down to this timeframe, which is January 2027.

So, this shows you a change in conditions that is happening here, indicating that if there is a rally in semiconductor stocks, it is likely to fail . This is the area of ​​resistance here.

We will call that the selling zone, which is declining because this indicator is declining. Then if we see a rise or a bounce here at some point, which I think could happen in December, we will likely get an opportunity to short sell semiconductor stocks . That's how we'll use and look at it.

We'll take a look at the individual stocks a little more quickly . This is what's important now. Remember, let me look at the comparison side by side here. Here I show you that the momentum on the weekly chart has turned downward.

I'm telling you that when that happens and it drops below 78.6%, 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, you know, right at the right time. This course came late. When there is all this selling pressure, it sometimes tends to go down.

I got the rebound, but then it shifted to the left side. In other words, this cycle peaked very early and then dropped to a lower low. This is extremely negative again . This suggests that this is likely to move to a lower level here until sometime in early November.

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

What that means is that you'll get some sort of bounce here, and then what will happen is that it will peak and then drop sharply again in December.

So, here you see the thin strip that has turned negative here . He turned this red. Here you see the thin bar indicator (PO) giving you a negative signal here to tell you that the momentum is bad.

Here you can see that while the rebound was ongoing, and I will zoom in on this so you can see it, the options slope indicator was telling you to maintain your positions on the buy side.

Interestingly, you got this island reversal there, a bearish turn on the reversal flashlight here, then this turned red, and then the options slope indicator here turns to say let's tilt our options positions to the sell side.

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