BTIG Warns SOX Faces Technical Turbulence, 17% Risk

Investment bank BTIG wrote in a recent report that the Philadelphia Stock Exchange Semiconductor Index, known as SOX, is exhibiting “severe” technical turbulence and could face a drawdown of up to 17%. The report notes the index sits below its 20-day moving average despite a year-to-date gain above 80%.

BTIG chief market technician Jonathan Krinsky pointed to a split among moving averages: SOX closed above its 50-day and 200-day moving averages but remained under the 20-day average. Krinsky wrote, “While this was too early of a signal in ’99, it had ominous outcomes in ’95, ’97, ’00, ’20, and ’24 preceding -17% or worse drawdowns.”

The report also flagged rapid session-to-session swings, described as “fluttering.” Over the past 30 trading days the index recorded moves of 3% or more on 15 occasions, a pattern the report links to weakening institutional buying pressure.

Analysts at Morgan Stanley and UBS noted SK Hynix’s large US initial public offering will add new semiconductor shares to the market, which could increase downside pressure on the group. BTIG’s technical observations coincide with that expected increase in supply.

Jefferies provided data showing that after comparable rapid gains, small-cap chip stocks averaged forward returns of about 7.0% at three months and 15.4% at six months.

Quarterly earnings reports are due in the coming weeks and are expected to show whether demand tied to artificial intelligence and other end markets is sustaining revenue and earnings growth for semiconductor companies.

BTIG’s report, the recent record of large short-term moves and the timing of SK Hynix’s US listing are the points analysts have cited in their recent notes on the sector.