📡 Semiconductor Signals
The semiconductor sector offers powerful relative strength signals for the entire market. As the picks-and-shovels of the AI revolution, chips lead economic cycles, tech rotations, and growth/value shifts. By monitoring ratios between semiconductor ETFs, the broader market, and related sectors, traders can identify inflection points before they show up in headlines.
This page consolidates the key relative charts and trading signals across the semiconductor complex into a single dashboard.
The semiconductor sector hierarchy
Semiconductors aren’t monolithic — different segments respond differently to economic conditions:
| Segment | Examples | Cycle Sensitivity | What Drives It |
|---|---|---|---|
| AI/Data Center Chips | NVIDIA, AMD, Broadcom | High | AI capex, cloud spending |
| Memory | Micron, SK Hynix | Very High | Supply/demand cycles, pricing |
| Foundry/Manufacturing | TSMC, Intel Foundry | Moderate | Capacity utilization, capex |
| Equipment | ASML, LRCX, AMAT, KLAC | High | Fab buildouts, capex cycles |
| Analog/Power | Texas Instruments, ON Semi | Moderate | Industrial, auto demand |
| Mobile/Consumer | Qualcomm, MediaTek | Moderate | Smartphone cycles |
Understanding this hierarchy is key: not all semiconductor stocks move together, and the ETFs weight these segments differently.
Essential relative charts
SMH/SPY — Semiconductors vs. Market
The foundational ratio for understanding semiconductor sector leadership:
| SMH/SPY Behavior | Signal | Interpretation |
|---|---|---|
| Strong uptrend | Tech leadership | Growth/AI trade working, risk-on |
| Breaking down | Rotation out | Value/defensives preferred, risk-off |
| Diverging from QQQ | Sector-specific | Semi-specific catalyst (earnings, AI news) |
| At 52-week highs | Extended | Watch for mean reversion |
When to use: Macro regime identification. Rising SMH/SPY = semiconductor leadership, growth trade working.
SMH/QQQ — Semiconductors vs. Tech
Shows whether semis are leading or lagging within the tech sector:
| SMH/QQQ Behavior | Signal | Interpretation |
|---|---|---|
| Rising | Semi leadership | AI/chip cycle accelerating |
| Falling | Broad tech preferred | Software, mega-caps leading |
| Breaking out | Inflection | New semi cycle beginning |
| Breaking down | Rotation | Semi cycle maturing, rotate to software |
When to use: Within-tech allocation. This tells you whether to overweight semis vs. broader tech.
XSD/SMH — Small-Cap vs. Mega-Cap Semis
The key ratio for measuring semiconductor market breadth:
| XSD/SMH Behavior | Condition | Action |
|---|---|---|
| Rising | Breadth expanding | Small-caps participating — healthy rally |
| Falling | Narrow leadership | Mega-caps only — watch for exhaustion |
| Breaking out | Risk-on | Overweight XSD for higher beta |
| Breaking down | Flight to quality | Stick with SMH, reduce XSD |
When to use: Breadth assessment. XSD/SMH rising = broad participation, sustainable rally.
SOXX/XLK — Semiconductors vs. Broad Tech
Compares pure semiconductor exposure to the broader technology sector:
| SOXX/XLK Behavior | Signal | Interpretation |
|---|---|---|
| Rising | Semis outperforming | Hardware > software, AI capex cycle |
| Falling | Software leading | SaaS, cloud software preferred |
| At extremes | Mean reversion | Ratio tends to revert over 1-2 years |
When to use: Sector rotation within tech. Helps time software vs. hardware allocation.
SMH/XLI — Semiconductors vs. Industrials
Compares growth (semis) to cyclical value (industrials):
| SMH/XLI Behavior | Signal | Interpretation |
|---|---|---|
| Rising | Growth leadership | Tech/AI preferred over old economy |
| Falling | Value rotation | Industrial capex, reshoring plays |
| Inflecting | Regime change | Major growth/value shift underway |
When to use: Growth vs. value timing. Major inflections in this ratio signal regime changes.
Cross-asset signals
SMH/GLD — Semiconductors vs. Gold
Compares the ultimate growth asset to the ultimate fear asset:
| SMH/GLD Behavior | Signal | Interpretation |
|---|---|---|
| Rising | Risk-on | Growth and innovation preferred |
| Falling | Risk-off | Fear, uncertainty, flight to safety |
| At extremes | Sentiment extreme | Potential mean reversion setup |
Historical context: This ratio captures the growth/fear spectrum. Extreme readings often precede reversals.
SMH/TLT — Semiconductors vs. Long Bonds
Shows the growth vs. duration trade:
| SMH/TLT Behavior | Signal | Interpretation |
|---|---|---|
| Rising | Growth preferred | Risk-on, duration avoided |
| Falling | Safety bid | Flight to duration, growth sold |
| Both falling | Risk-off panic | Broad deleveraging |
| Both rising | Goldilocks | Growth with falling rates |
When to use: Macro regime confirmation. The relationship between chips and bonds reveals risk appetite.
SMH/USO — Semiconductors vs. Oil
Compares new economy (chips) to old economy (energy):
| SMH/USO Behavior | Signal | Interpretation |
|---|---|---|
| Rising | Tech dominance | Growth/innovation leading |
| Falling | Commodity cycle | Energy, inflation trades working |
| Decoupling | Sector-specific | Watch for divergent catalysts |
When to use: New vs. old economy positioning. Extended readings often revert.
Cycle phase identification
Beginning of Semiconductor Cycle
Signals present:
- SMH/SPY bottoming after decline
- XSD/SMH stabilizing (breadth improving)
- Memory pricing bottoming (check Micron, SK Hynix)
- Inventory digestion completing
- Analyst sentiment still cautious
- Equipment orders stabilizing (ASML, LRCX)
Action: Accumulate semiconductor exposure. Consider XSD for higher beta.
Middle of Semiconductor Cycle
Signals present:
- SMH/SPY in clear uptrend
- XSD/SMH rising (breadth expanding)
- AI/data center capex announcements
- Memory pricing rising
- Analyst upgrades accelerating
- Equipment lead times extending
Action: Hold positions. Add on pullbacks to rising moving averages.
End of Semiconductor Cycle
Signals present:
- XSD/SMH rolling over (breadth narrowing)
- SMH/SPY making lower highs despite price strength
- Universal bullish consensus (“AI will never end”)
- Memory pricing peaking, inventory building
- Equipment cancellations appearing
- Valuation multiples stretched
Action: Tighten stops. Reduce high-beta (XSD, leveraged). Rotate to quality or exit.
Fundamental data to monitor
Quarterly Data
| Data Point | Source | What It Signals |
|---|---|---|
| TSMC Monthly Revenue | TSMC IR | Real-time chip demand |
| Memory Spot Pricing | DRAMeXchange | Supply/demand balance |
| Semiconductor Billings | SIA | Industry revenue trends |
Earnings Season Signals
| Company | Why It Matters | What to Watch |
|---|---|---|
| NVIDIA | AI bellwether | Data center revenue, guidance |
| TSMC | Foundry demand | Utilization, capex plans |
| Micron | Memory cycle | Pricing trends, inventory |
| ASML | Equipment demand | Backlog, order book |
| AMD | AI competition | Data center share gains |
Industry Events
| Event | Timing | What It Signals |
|---|---|---|
| CES | January | Consumer tech demand |
| Mobile World Congress | February | Mobile/5G trends |
| NVIDIA GTC | March | AI roadmap, demand signals |
| Computex | June | PC, server trends |
| Hot Chips | August | Next-gen architecture |
The semiconductor dashboard
Use this as a quick reference for reading the semiconductor complex:
Bullish Signals (Accumulate Semis)
| Signal | What You’ll See |
|---|---|
| SMH/SPY breaking out | Sector leadership emerging |
| XSD/SMH rising | Breadth expanding |
| Memory pricing firming | Inventory digestion complete |
| TSMC revenue growing | Real demand, not hype |
| Equipment orders rising | Capex cycle beginning |
| SMH above 50-day MA | Trend confirmation |
Bearish Signals (Reduce Semis)
| Signal | What You’ll See |
|---|---|
| SMH/SPY breaking down | Rotation out of semis |
| XSD/SMH falling | Narrow leadership, mega-caps only |
| Memory pricing falling | Oversupply, demand weakness |
| Inventory building | Channel stuffing |
| Equipment cancellations | Capex cuts coming |
| Universal bullish consensus | Crowded trade |
Neutral/Transitional
| Signal | Interpretation |
|---|---|
| Mixed ratios | No clear direction, reduce position sizes |
| SMH range-bound | Wait for breakout confirmation |
| Conflicting earnings | Rotation within semis, be selective |
Actionable strategies
Strategy 1: Sector Rotation
Setup: SMH/SPY breaking out from consolidation after underperformance
Entry: Buy SMH (or SOXX) on breakout confirmation
Management:
- Add on pullbacks to 20-day MA
- Watch XSD/SMH for breadth confirmation
Exit: SMH/SPY breaks below 50-day MA
Strategy 2: Breadth Expansion Trade
Setup: XSD/SMH bottoming after extended period of mega-cap dominance
Entry: Buy XSD when ratio breaks above 20-day MA
Thesis: Breadth expanding, small-caps catching up to mega-caps
Management:
- Hold while XSD/SMH rising
- Take profits when ratio reaches prior resistance
Exit: XSD/SMH breaks below entry level
Strategy 3: AI Cycle Trade
Setup: NVIDIA earnings beat + raised guidance + SMH/QQQ breaking out
Entry: Buy SMH on earnings confirmation
Management:
- Trail stop at 21-day EMA
- Add on subsequent AI capex announcements
Exit: SMH/QQQ rolls over, AI narrative questioned
Strategy 4: Mean Reversion
Setup: SMH/SPY at multi-year extremes (2+ standard deviations)
Entry: Fade the extreme when momentum indicators diverge
Thesis: Extended ratios tend to revert
Exit: Ratio returns to mean (50-day or 200-day MA of ratio)
Quick reference table
| Ratio | Rising Means | Falling Means | Primary Use |
|---|---|---|---|
| SMH/SPY | Semi leadership | Rotation out | Sector allocation |
| SMH/QQQ | Semis > broad tech | Software leading | Within-tech allocation |
| XSD/SMH | Breadth expanding | Narrow leadership | Market health |
| SOXX/XLK | Hardware > software | Software cycle | Tech rotation |
| SMH/XLI | Growth > value | Value rotation | Regime identification |
| SMH/GLD | Risk-on | Risk-off | Sentiment |
| SMH/TLT | Growth > duration | Safety bid | Macro regime |
Deep dive: ETF selection
Understanding which semiconductor ETF to use matters as much as timing:
Sources
Relative strength methodology
Ratio analysis: Standard relative strength methodology comparing ETF price series. Rising ratio = numerator outperforming denominator.
Sector rotation: Based on established intermarket analysis frameworks. Semiconductor subsectors respond differently to economic and AI cycles.
Fundamental data sources
TSMC Revenue: TSMC Investor Relations — Monthly revenue disclosures.
Memory Pricing: DRAMeXchange/TrendForce — DRAM and NAND spot pricing.
Semiconductor Industry Association: SIA — Monthly billings data, industry reports.
World Semiconductor Trade Statistics: WSTS — Global semiconductor market data.
ETF information
- SMH: VanEck — Market-cap weighted, mega-cap focus
- SOXX: iShares — Modified cap-weighted, capped positions
- XSD: State Street — Equal-weighted, small-cap tilt
- XLK: State Street — Technology Select Sector