From Semi to Fully Bullish
RLT Newsletter 4.26.26
Markets crushed higher this week, with QQQ starting to break away from SPY, just like we saw in October 1999, which is the SPY analog I’ve been tracking since early April. I don’t think we get the same kind of blowout, bubble-style outperformance from QQQ that we saw back then, but it’s absolutely worth noting the similarities between these two periods.
SPY Daily Chart
The big story right now is semiconductors.
We’ve seen SOXX and SMH absolutely rip higher throughout April, with SOXX not printing a single red day all month. I went back and studied what tends to happen after these kinds of runs, and interestingly, it lines up almost perfectly with what SLV did at its top, which set up one of the best shorts I’ve ever taken.
The pattern is pretty consistent. SOXX pushes into extreme overbought territory, usually an RSI of 80 to 85, then pulls back slightly into the 10 or 20 EMA, followed by one more push to a marginal new high with RSI divergence. That final push marks the short-term top, and from there SOXX typically corrects back toward the 100-day SMA.
Here are the historical examples where this played out:
January 2011 - 5% extension after RSI peak, 24 candles until final high
July 2014 - 2% extension after RSI peak, 20 candles until top
November 2017 - 2% extension after RSI peak, 12 candles until top
January 2021 - 6% extension after RSI peak, 21 candles until top
November 2021 - 6% extension after RSI peak, 33 candles until top
October 2025 - 7% extension after RSI peak, 17 candles until top
SOXX Daily Chart
Shorting this kind of strength is tricky and often not a great idea. Just look at SNDK as a reminder of why it usually pays to trade with the trend, not against it.
That said, I know people are going to try, myself included, so this data can at least help with timing. Being even a few days early on parabolic moves like SLV or CAR can lead to significant losses, which makes risk management and disciplined stops critical.
My plan is to wait for the first dip so I can get a clearer signal that the RSI high is likely in. From there, I’ll be watching for one more push into new all-time highs to look for a short entry.
If history plays out again, keeping stops around 8% above the RSI high and allowing 30+ days for the setup to work should help keep me in the trade without getting shaken out too early.
I don’t view this semiconductor run as a bubble. There are real fundamentals underneath it, even if some of them are questionable or involve circular financing. To me, this is froth in an otherwise very strong and necessary part of the market. That froth will get cleaned up eventually through a correction, but it can persist much longer than most expect.
At the end of the day, I follow price. One of the biggest drivers behind Friday’s move in semis was INTC. The “dead” chip company that everyone had written off is suddenly back in play. The takeaway there is simple: don’t fade America.
The INTC chart is extremely interesting right now. It just printed a bullish high-wave candle after a 24% gap higher, following a 380% run back to new all-time highs in less than a year. With price now gapping above those highs, the key question becomes: what kind of gap is this?
Is this a breakaway gap like NVDA in May 2023, or an exhaustion gap like ORCL in September 2025? The answer will come from the technicals. If this is a true continuation move, INTC should not fill more than 50% of the gap. Ideally, we see follow-through higher over the next several days or even weeks before any meaningful retest. On the other hand, if price closes back below Friday’s candle, similar to what we saw with ORCL, that would be a major warning sign. Go study those NVDA and ORCL gaps closely. I’ll be watching INTC daily from here.
INTC Daily Chart
Looking ahead, big tech earnings could play a major role in what semis do next. Five Trillion Dollar Titans report this week, with four of them reporting on Wednesday: MSFT, AMZN, GOOGL, and META. AAPL follows on Thursday.
Most of these names will likely beat expectations. The bigger question is guidance. Any signs of slowing capex or reduced spending could weigh on semiconductors. Even with strong earnings, after a 20% run in April, the risk/reward in big tech isn’t particularly attractive at these levels.