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The Homebuilders ETF (BATS:ITB) and the semiconductor ETF (NASDAQ:SMH) were trading almost identically from June 2022 through May, but over the last month, semis have outperformed the homebuilders by 26%.
“If the once unbreakable builders can fall, we would argue the semis can as well,” wrote Analyst Jonathan Krinsky in a BTIG Technical Strategy note.
He explained that the S&P 500 Semi & Semi Equipment Index (SP500-4530) is 61.5% above its 200-day moving average, and that is the widest spread since March-April 2000. The all-time high spread was 78%, and it happened on March 22, 2000.
“The current spread is in the top handful of readings all-time,” Krinsky said. “It’s been nearly impossible to fade the AI strength, but for much of the last two years we could have said the same thing for homebuilders (ITB).”
The iShares U.S. Home Construction ETF (ITB) had their bear market low on June 17, 2022, and although the S&P 500 (SP500) had its low the following October, the homebuilders ETF did not go lower. From there, the index gained 128%.
On the other hand, semis (SMH) had almost an identical return over that same timeline and gained 129%, but since May 15, semis is up 18% (and 45.6% above its 200-day moving average, the largest spread in its history) while homebuilders is down -8%.
“Like many parts of the market, the question is can (ITB) start to rally, or will (SMH) catch-down to ITB?” Asked Krinsky. “A -10% drawdown in (SMH) from current levels would barely break the 20-day moving average. A -15% decline would still leave it above its 50-day moving average. Just some perspective as it feels like these names will never pullback.”
