According to charts, semiconductor stocks are going through a “time correction,” which will eventually be overcome by another surge.
On the surface, there are certain technical indicators that point to the chip-sector bulls perhaps losing speed and that bears might easily seize control of the trend. However, a closer examination reveals that bulls seem to be taking a break as they prepare for a significant increase next year.
Even though they are uncommon, prior identical technical makeups suggest that the next leg up may continue well into 2026 and possibly pick up speed in the second half. However, historical patterns may not necessarily repeat, so investors should closely monitor the charts.
The negative technical divergence, which occurs when prices continue to trend higher while a widely followed momentum indicator begins to trend lower, is what chart watchers refer to as the signal of chip-sector weakness.
Prices for the PHLX Semiconductor Index SOX continue to rise, as evidenced by the record close of 7,327.93 on October 29 and the even higher record of 7,467.49 on December 10. The 30 stocks of semiconductor makers and businesses that offer associated equipment and services make up the SOX. The iShares Semiconductor ETF SOXX tracks it.
However, from a closing of 70.39 on October 29 to 65.62 on December 10, the Relative Strength Index—which many technicians use to assess the rate of price movement—has dropped. The RSI had already dropped from its top of 81.62 on October 6 (RSI readings above 70 indicate an overbought technical scenario), which was the highest since the 82.07 print on January 14, 2021, before reaching that lower high. When rallies surpass historical averages, overbought readings arise.
The RSI stood at 55.46 on Wednesday, while the SOX finished at 7,204.37.
In essence, the charts are alerting traders that momentum is slowing down and that rising prices for the “SOX” are displacing bulls. According to Ari Wald, head of technical analysis at Oppenheimer, negative divergences show that the price is slowing and may reverse course, while high RSI readings, even when they are in overbought area, suggest that the price is accelerating.
But according to Wald’s emailed remarks to MarketWatch, divergences are stronger “if there’s additional evidence that warns of a reversal, for instance, if price is moderating at a key resistance level and losing relative strength.”
That isn’t the case for the SOX at the moment, according to Wald, who supports the “positive trend and bullish relative strength the [semiconductor] industry has exhibited.”
Remember the Wall Street maxim that nothing is more bullish than a record high, and the SOX has hit several record highs in spite of worries that the deflation may have been triggered by an artificial intelligence bubble. Wald used the term “relative strength” to describe how much better the SOX has done in comparison to the overall market. Through Wednesday, it was up 44.7% in 2025, while the S&P 500 index SPX had up 17.9%.
According to Wald, the RSI’s decline simply indicates that the chip industry is going through a “time correction,” which he defined as the elimination of “prior excesses” and prolonged sideways price movement. Moving averages and other technical indicators are able to catch up to prices as a result.
In the meanwhile, it appears that all of that has already occurred.
The 50-day moving average of the SOX, a popular short-term trend indicator, has recently risen higher than it has in years above its 200-day moving average, a crucial long-term trend indicator. Furthermore, throughout the last 30 years, it has only made a handful such actions.
A MarketWatch examination of FactSet data shows that on Dec. 11, the 50-DMA was 24.2% above the 200-DMA, the highest since it hit that level in mid-February 2021.
The 50-DMA was only more than 24% above the 200-DMA twice in the previous 30 years: from January 22, 1999 to April 19, 1999 (peaking at 33.4% above on March 2, 1999) and from December 31, 1999 to June 29, 2000 (peaking at 55% above on April 12, 2000).
This is where those earlier incidents and the current technical makeup are comparable.
The SOX’s RSI had hit an overbought extreme on January 14, 2021 (see above), and then made lower highs even as prices made higher highs to a then-record close on April 5—one month before the last time the 50-DMA was more than 24% above the 200-DMA. The SOX then resumed its run after a brief “time correction,” posting a gain of 41.2% for 2021, including a 21.1% leap in the fourth quarter.
In 2022, the SOX did see a bear market decline of 35.8%. However, that selloff didn’t begin until over a year after the 50-DMA reached its top above the 200-DMA during a bearish technical divergence period, which is comparable to what’s occurring right now.
Additionally, RSI began moving lower while prices continued to rise after reaching an overbought extreme of 84.89 on November 23, 1998, and the 50-DMA rose far above the 200-DMA. The SOX began to take off in early June following another “time correction,” during which it barely fluctuated during the first few months of 1999. In 1999, it surged 101%, with a 41.2% increase in the fourth quarter of that year.
In the meantime, the first half of 2000, when the 50-DMA was significantly higher than the 200-DMA, was characterized by both lower price and RSI highs. It was an indication that the dot-com bubble was about to explode. Remember once more that the SOX peaked in March 2000, around a year after it showed a comparable technical composition to its current state.
According to such examples, the SOX may yet see significant rallies for some time to come. However, watch for those lower price peaks.
