XSD Update: The Breadth Warning Has Become Price Confirmation
On Tuesday, 02 June I wrote that the troops were leaving before the generals arguing for a short-term top in semiconductor stocks.
The signal was XSD: the equal-weight semiconductor ETF had stopped confirming the mega-cap-led semiconductor advance.
That warning has now turned into price confirmation.
XSD is breaking down hard today and is testing — likely breaking — the steep upward channel in place since the late-March low.
If that break holds into the close, the April–June leg of the second-tier semiconductor bull should be treated as over. The same may apply to the Tier 1 semi stocks, too.
This is not the end of the structural semiconductor story. It is the end of the parabolic leg in the weaker, broader (and potentially the megacap part) part of the semi complex.
The next support is around 580. Below that, the larger support zone sits near 520. Those are the levels that matter now.
A bounce next week would be normal after a move like this. But the character of that bounce matters. I would not expect a clean new all-time high from here. The more likely path is a failed rally attempt below the prior high, followed by a second leg lower — a classic A-B-C corrective structure: first break, relief bounce, then another decline.
In other words: the market may give semis another attempt. But unless XSD quickly recaptures the broken channel and breadth improves, that attempt should be treated as a retest rather than a restart.
The generals looked fine a bit longer than the troops. The troops have now confirmed the retreat again.
A slightly sharper ending:
The bull market in semis is not over. But this leg of it is. The next short-term rally is likely to be sold rather than chased.