Semiconductor Stock Shake-Up: Are Applied Materials and Lam Research Poised for a Deeper Correction?
The semiconductor industry, buoyed for much of 2023 by the exceptional performance of **Nvidia**, is experiencing a significant shift. While Nvidia continues to outperform, a significant downturn has gripped other semiconductor stocks, particularly within the equipment sector. **Applied Materials (AMAT)** and **Lam Research (LRCX)**, two industry giants, are now facing crucial support level tests, raising concerns about a potential prolonged correction. This downturn follows a similar bearish trend observed in **ASML Holdings N.V. (ASML)**, a leading indicator in the semiconductor equipment market. Analysts are closely watching these developments, particularly in light of Nvidia’s upcoming earnings report, to gauge the broader impact on the sector and predict the course of these key players’ stock prices into 2025.
Key Takeaways: Semiconductor Sector Facing Headwinds
- Major Downturn in Semiconductor Stocks: The PHLX Semiconductor Equal Weighted Index has plummeted approximately 25% since July 11th, while the S&P 500 gained nearly 6% in the same period, showcasing a significant underperformance.
- Equipment Sector Leading the Decline: Semiconductor equipment stocks, including industry bellwethers like **AMAT** and **LRCX**, are experiencing significant weakness, with key support levels being tested, and long-term momentum indicators weakening.
- Bearish Technical Signals: Monthly and weekly technical indicators for **AMAT** and **LRCX**, such as MACD and stochastic oscillators, are displaying negative signals, suggesting a potential for a continued correction possibly extending into the **first half of 2025**.
- Nvidia’s Earnings Await: While **Nvidia’s** upcoming earnings report could cause short-term volatility, the bearish trends in **AMAT** and **LRCX** suggest that any rebound might be temporary.
- Potential for Deeper Corrections: Analysts predict the possibility of deeper corrections for **AMAT** and **LRCX**, with potential support levels at **Fibonacci retracement levels and previous resistance-turned-support levels** being tested.
Applied Materials (AMAT): A Long-Term Bearish Reversal?
Applied Materials, a major player in semiconductor manufacturing equipment, is facing a critical juncture. The stock recently gapped lower, breaking below its weekly cloud model support near **$177**. A confirmation of this breakdown this week could signal a long-term bearish reversal, according to Fairlead Strategies’ analysis. While the **2021 high, near $167**, might offer short-term support, a breach of that level would suggest even deeper losses are likely. A significant support level to watch is the **61.8% Fibonacci retracement level near $142**.
Weakening Momentum, Increasing Downside Risk
Fairlead Strategies points to the negative weekly MACD for AMAT, coupled with the absence of downside exhaustion signals. This combination increases the likelihood of a continued downward trend. The monthly MACD has also turned lower for the first time since early 2022, indicating a significant weakening of long-term momentum. This confluence of negative signals points to a potentially protracted correction lasting several months, possibly extending into the first half of 2025.
Lam Research (LRCX): Confirmed Breakdown and Further Downside
Lam Research’s situation appears even more concerning. The stock has already confirmed a breakdown below its weekly cloud model, a long-term bearish development. A further breakdown below the **2021 peak, near $73**, by the end of this week would solidify this bearish trend. Similar to AMAT, LRCX’s weekly MACD is negative, and there’s no indication of exhaustion in the selling pressure. Analysts anticipate a deeper correction, with the **61.8% Fibonacci retracement level near $62** representing a key support to monitor.
Monthly Chart Concerns
The monthly chart for LRCX also paints a concerning picture. Like AMAT, the monthly MACD has turned lower, signaling a longer-term weakening of momentum. While the monthly stochastic oscillators are not yet oversold, this increases the risk of extended declines. The overall technical picture thus suggests a strong probability that the corrective phase for LRCX will continue for several months.
Nvidia’s Earnings and the Broader Semiconductor Outlook
Nvidia’s earnings report on Wednesday will undoubtedly create short-term volatility across the semiconductor sector. However, the established bearish trends in AMAT and LRCX suggest that any positive impact from strong Nvidia results might be short-lived. The fundamental shift in market sentiment regarding these semiconductor equipment companies suggests that the broader market may be pricing in potential headwinds for the industry. **The underlying weaknesses observed in AMAT and LRCX may not be easily reversed even with strongly positive Nvidia data.**
The Importance of Diversification
The current market conditions underscore the need for investors to carefully consider their portfolio diversification. The exceptional performance of Nvidia does not guarantee similar performance across the entire semiconductor sector. The significant downturn in other semiconductor stocks, particularly in the equipment sector, highlights the risks associated with focusing investments heavily within a single industry segment. A balanced approach that considers both industry leaders and the potential for significant corrections within the broader sector is crucial.
Disclaimer
The analysis presented here is based on the research of Fairlead Strategies and should not be considered financial advice. Past performance is not indicative of future results. Investing in the stock market involves inherent risks, and investors should conduct their own thorough due diligence before making any investment decisions. Always consult with a qualified financial advisor before making significant investment choices.
