In a big earnings week, one sector may stand out more than others, according to market expert Jay Woods.
While the semiconductor sector doesn’t have as many big names reporting, it’s one of the most important for deciding whether investors are in a bull or bear market.
The Most Important Chart in the World
Nvidia Corporation (NASDAQ:NVDA) stock hit all-time highs earlier this month. That move was followed by a 13% decline for the stock and an 18.5% drop for the semiconductor index.
"Technically speaking, the semiconductor index is in a bear market," Freedom Capital Markets Chief Market Strategist Jay Woods writes in a weekly newsletter.
That puts the index down 18.5% since Nvidia hit all-time highs and 22% from the June highs.
Woods uses the VanEck Semiconductor ETF (NYSE:SMH) in the newsletter to illustrate his points.
TradingView Chart of SMH from Jay Woods newsletter
"When we examine the chart, we see it’s at a crucial level that needs to hold or it could spell near-term doom to the overall market. This may be the most important chart in the world."
Woods said he may be slightly dramatic calling the chart the most important, but it comes with the semiconductor sector the "backbone of the AI trade."
What Happens to Markets
"If this breaks down so does the market."
Woods said that the semiconductor index holdings make up around 16.5% of the S&P 500 by index weight, which shows their importance.
"If the chips start to crack, it could be more than just a warning sign for AI enthusiasm. It could be the first domino to fall in a much broader market correction."
Woods is looking for the $500 level of the SMH to hold if its tests again. If it fails to hold that level could see the S&P 500, which is tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), fall.
The market expert predicts this week could be when the S&P 500 cracks.
"The good news is if any fracture in the semis can hold support a snap back rally could be fast and furious."
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