The last time chip stocks did this, they dropped nearly 20%

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The last time chip stocks did this, they dropped nearly 20% $SMH (via TradingNation)

"It's running hot. It's overbought," he said, pointing to the SMH's relative strength index. "It's more overbought than it was in April just before it began a 17% correction, and it's more overbought than it was on several other occasions in the last 18 months just before the group rolled over."

That calls SMH's recent "higher high" into question, Maley said, adding that it "looks like it's poised to take a little bit of a breather." "However ... if after that breather, or even immediately, the group makes a more substantial higher high, it's definitely going to be bullish for the group," the strategist said. "And, as we learned last year, it was a key leading indicator for a downturn in the fourth quarter and it was a powerful leader in the rally in the first four months of the year. So, whichever way this thing eventually breaks is going to be very, very important for the broad market as well.

Gina Sanchez, founder and CEO of Chantico Global, also harbored reservations about the chip stocks, particularly heading into the second half of 2019. "I think that the pop you're seeing really is just because valuations have been so depressed since the U.S.-China clash really started taking hold," she said in the same "Trading Nation" interview. "So, you get a

 

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