Semiconductor Stocks Face Potential 15-20% Drop, BTIG Analyst Warns

A significant correction may be ahead for semiconductor stocks, with BTIG technical strategist Jonathan Krinsky forecasting a potential decline of 15% to 20%. In a recent note, Krinsky argued that the sector has "unfinished business" to the downside and is likely to test its long-term trend support.

Technical Weakness in Chips

Krinsky's analysis centers on key technical indicators for the semiconductor sector. He pointed to the iShares Semiconductor ETF (SOXX) as a benchmark that continues to trade below its declining 50-day moving average, a sign of weakening short-term momentum.

He believes an eventual test of the ETF's 200-day moving average is probable. According to Krinsky, such a move would imply a decline of roughly 17% from current trading levels, aligning with his broader forecast for the sector.

Broader Market Jitters

The warning for chip stocks came within a wider market analysis describing a "holding pattern." Krinsky noted that the Nasdaq 100-tracking Invesco QQQ Trust (QQQ) has been range-bound for 27 trading days, leading to exceptionally tight Bollinger Bands. "At some point this will see a resolution, and our view remains that it will be to the downside," he wrote.

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Krinsky also highlighted a concerning internal divergence in the market. He observed that while the Russell 3000 index is less than 3% from a 52-week high, nearly 5% of its components hit a 52-week low on Thursday. He noted that this setup has preceded meaningful drops in the past, including in March 2000, October 2007, and January 2020.

Cross-Asset Signals

Beyond equities, Krinsky commented on other market segments that suggest caution. He observed that while sentiment on bonds is deeply negative, 10-year real rates have just broken out to a new cycle high from a three-year range. "It’s hard to say this is a major top for rates," he stated.

Furthermore, he noted that energy stocks, as tracked by the Oil Services ETF (OIH), closed lower for the week despite WTI crude oil prices surging above $100 a barrel. Krinsky cautioned that weakness in the energy sector amid high commodity prices should not be interpreted as a bullish signal for the broader market.