This article is written exclusively for Investing.com
The semiconductor industry was one of the most popular in the market in 2020 based on the VanEck Vectors Semiconductor ETF (NYSE :). The ETF is up nearly 30% from the year, and up nearly 90% from its March low.
The movement in the group was breathtaking, with a higher lead by companies such as NVIDIA (NASDAQ :), Advanced Micro Devices (NASDAQ 🙂 and Qualcomm (NASDAQ :).
However, there are signs that the big step may be due to a reversal. A substantial bearish bet was placed on Monday that the SMH ETF would drop by about 7% from its current price of about $ 184.50 on Oct. 22. Additionally, the ETF's technical trends are starting to break down after its massive run. Couple that with Intel (NASDAQ :), which plummeted after the third quarter of weak data center revenues.
A Massive Wager
On Monday, October 20, a block of 15,000 contracts had been purchased from the SMH May 21, $ 200 wells for about $ 27.50. Open interest rates for that contract rose the next day, October 21, with the same 15,000 contracts. This suggests that a bearish bet has been made and the SMH is going below its current price. In order for the trader to profit, the ETF would have to drop to $ 172.50 or below if he holds the puts until maturity.
This is a huge bet, with the merchant spending approximately $ 41.2 million in premiums to execute the transaction. . Interestingly, it is the only open position in that contract and the largest open position of all options in the symbol.
Chart courtesy of Investing.com
Technicals Breaking Down ]
In addition, the technical chart also flashes with warnings, with a relative strength index which is trending sideways despite the ETF hitting new highs. This appears to be a sign of a bearish divergence. It would indicate that momentum is now leaving the ETF and lower prices are in the offing. It also appears that a descending triangle is forming in the ETF, which would suggest it is falling to about $ 174.
AMD Struggles
The weakness may Be seen first hand in the names that helped lift the ETF higher. Since Oct. 8, AMD has not kept pace with the ETF's nearly 12% decline, while the SMH is up nearly 1%. NVIDIA stocks have also struggled, losing nearly 6% in the same time.
AMD could be in the worst position when the SMH starts to decline. The stock has seen its RSI trend decline steadily since mid-August as the stock price hit record highs on September 2. This, too, is a bearish divergence indicating a massive loss of momentum, and lower prices are likely to come. Even worse, the RSI is only in the mid-40s and should drop to 30 or below before oversold.
Additionally, a potentially very bearish reversal pattern has formed in the stock known as a head-and-shoulders. Should this stock fall below $ 75, it would likely confirm that bearish pattern. It could cause the stock to drop to just $ 62
. Although it is not clear why the trader placed that big option bet or what they had in mind. It seems they are not afraid to come forward and put a huge amount of money into a targeted bet on the industry. Maybe they think what starts out as a weakness in just a few stocks will spread across the group.
Maybe Intel is a sign of things to come.
