The SMH, a semiconductor ETF, has been hitting all-time highs, rising over 100% since its lows in April. This growth is fueled by major semiconductor companies, like AMD and NVDA, making SMH a key indicator for tech and innovation. This ETF tracks the MVIS US Listed Semiconductor 25 Index, which includes top firms such as NVIDIA and Intel. Currently, the ETF is trading within an upward parallel channel, with the upper limit around $380, hinting at potential resistance.

Channel As A Warning

This channel might signal a possible pullback or a period of consolidation before the ETF resumes its rise. Traders can consider two strategies: short selling near the channel’s top or waiting for confirmation of a drop below its lower boundary. Regardless of the strategy, proper risk management is crucial. Each setup can present opportunities, but without clear risks or stop losses, even promising technical signals can lead to losses. Staying disciplined and patient is key to navigating these trades. The SMH is on a strong run, reaching all-time highs just yesterday, October 29, 2025, showcasing the strength of companies like NVIDIA. This impressive rally has more than doubled since the low on Liberation Day in April 2025. However, it’s now testing the limits of its technical channel. We are keeping a close watch on the $380 level, the upper limit of this upward channel. This could be an ideal point to initiate bearish positions, like buying out-of-the-money puts for November or December, to take advantage of a potential decline. Recent data from the Semiconductor Industry Association showing a slight dip in global sales for September adds a fundamental reason for caution.

Potential For Break Below Channel

This technical resistance appears as some underlying weaknesses emerge. For instance, TSMC’s guidance during its earnings call last week pointed to declining demand from the consumer electronics sector as we move into 2026. This suggests that the strong growth we’ve experienced might be ready for a break. For those who want more assurance, an alternative is to wait for a clear break below the channel’s lower boundary, currently around $355. A solid close below this level could lead to a quicker decline, making it a good entry point for buying puts or setting up bear call spreads. This approach may reduce potential profit but increases the likelihood of success. It’s important to remember that significant pullbacks are common in this sector after long rallies. For example, we saw a similar over-extended rise in early 2024, followed by a quick 15% correction in April. History shows that rapid price increases often need time to cool before the next upswing. No matter which strategy you choose, managing risk is essential, especially when using derivatives that are subject to time decay and leverage. Setting a clear stop-loss, perhaps if it closes above the $385 level, is vital for protecting your capital. The goal is to capture a high-probability pullback without trying to fight a relentless trend. Create your live VT Markets account and start trading now.

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