Price seen softening further for key semiconductor index

THE Philadelphia Semiconductor Index (SOX) is a modified capitalisation-weighted index comprising companies involved in the design, distribution, manufacturing and sale of semiconductors.

Since peaking in mid-July this year, the SOX has pulled back over 15 per cent, underperforming the broad-based S&P 500, which has risen over 8 per cent in the same period. This weakness came on the back of an escalation in the US-China chip war.

The United States continued to impose stricter export curbs in a bid to stymie China’s ability to access and produce semiconductor chips that can help advance artificial intelligence (AI) for military applications or otherwise threaten US national security. These measures include restrictions on China-bound shipments of high-bandwidth memory chips, critical for high-end applications like AI training.

In a move likely seen as retaliatory against Washington’s recent curbs, Beijing also launched an investigation into AI bellwether Nvidia Corp over suspected violations of China’s anti-monopoly law, further heightening tensions.

From a technical perspective, the SOX has shown signs of price weakness. In mid-November, it broke below an ascending triangle formation trendline support at the psychologically important 5,000-point level and has since been trading within a downtrend channel. In addition, the popular medium-term 100-day Simple Moving Average trend barometer has acted as a dynamic resistance since August.

Moving forward, we will likely see further price weakness in the semiconductor index as it trades within the downtrend channel coupled with the current negative market sentiment in the sector.

The writer is research analyst, Phillip Securities Research

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