Will The Breakout in VanEck Semiconductor ETF Continue?

Key Points

• Major breakout in the semiconductor sector ETF: SMH.
• A key upcoming catalyst, Nvidia earnings.
• Key clues lie ahead for the performance of SMH.

Investors in semiconductors had a lot to smile about last week. Last week's breakout in VanEck Semiconductor ETF NASDAQ: SMH was nothing short of impressive. Both traders and investors would have loved to see it, as this is the type of opportunity and momentum they dream of.

However, should investors and traders take their feet off the gas or continue pressing after such an explosive move?

SMH experienced a remarkable breakout last week, surpassing the previous resistance level of $125 and reaching a new high for the year. This breakout indicates a shift in market sentiment towards semiconductor stocks, with investors eagerly flocking to the sector after recognizing its growth potential.

The Breakout

Last week's breakout was impressive, with SMH closing the week up 8.46% at $133.3, marking a new high for the year. Before the breakout, SMH was already trading above the 200-day moving average and hovering around the 50-day and 20-day moving averages, indicating a higher time-frame uptrend while consolidating in the short term.

Participants must monitor SMH's ability to maintain support above the breakout level. With upcoming catalysts around the corner for the sector, participants in SMH might want to see the price stabilize over the previous high of $132 and digest the recent move, as indicators point toward the sector being overbought in the short term.

The next potential area of resistance and target to watch is around $140.

The Upcoming Catalyst For SMH

The highest-weighted name in SMH, NVIDIA NASDAQ: NVDA, is set to report earnings this week. This upcoming announcement adds an extra layer of anticipation and speculation. Will the earnings report further confirm the sector's strength or introduce new risks for investors? It's a situation to keep an eye on.

Considering Buying SMH?

When considering trading or investing in the semiconductor ETF, it's essential to focus on the sector ETF and the top-performing individual stocks that significantly impact the sector's overall performance. By closely monitoring these stocks, you can gain valuable insights into the sector's direction and identify the sector's relative strengths and weaknesses.

Three Companies To Watch

The below three companies are among the top 10 holdings in the SMH ETF, and all had impressive performances last week, closing with gains of over 10%. They have played vital roles in driving innovation, shaping the semiconductor industry, and lending a helping hand in last week's SMH breakout.

NVIDIA has been an outstanding performer, delivering exceptional financial results and driving innovation in graphics processing units (GPUs) and artificial intelligence (AI) technologies. The company's share price has significantly risen, adding to its impressive gains of 113% YTD. With NVIDIA set to report earnings this week, current and potential investors in SMH must watch the company's performance closely. In the short term, shares of NVIDIA appear to be overbought, with the stock already up 15% on the month and trading at the resistance of its upward channel.

Similarly, Advanced Micro Devices NASDAQ: AMD has displayed remarkable performance in recent weeks, up 17% on the quarter and 63% YTD. Having a top 10 weighting in SMH, investors in the ETF would want AMD to continue to display relative strength and base over the previous resistance of $100.

Micron Technology NASDAQ: MUis another strong performer in the semiconductor sector. Last week, MU's share price broke out of a one-year consolidation, signaling a significant character change. The stock is up 36% YTD and 15% on the quarter. Like AMD, if MU can hold over the breakout zone of $65 and confirm that buyers are willing to step higher, further momentum could be on the cards for SMH.

The upcoming week will provide important clues as to whether the momentum will continue in the sector, with the focus being on NVIDIA's earnings report.