SMH shares could be in for a long-term reversal, as a double top pattern can be seen on its daily time frame. Price failed in its attempts to break past the $56/share area, with the pattern’s neckline located around the $53/share level.
A break below the neckline could confirm the downtrend, which might last until the $50/share support zone. For now though, the short-term 50 SMA is moving above the long-term 200 simple moving average, indicating that the uptrend is still intact.
SMH Shares Forecast
A move below the pattern’s neckline would also mean a break below the 50 SMA, an early signal that the SMH shares uptrend might soon be reversed. MACD is pointing down, reflecting a buildup in selling pressure.
A prolonged drop could mean a move below the $50/share area onto the support at the 200 SMA or the $49/share mark. Further declines could take SMH shares down to $45/share, depending on this week’s market events.
The main event risk for this setup this week might be the FOMC minutes, which should indicate whether or not the Fed is looking into tightening monetary policy with a rate hike sometime this year. If so, US equities could return more gains in anticipation of tighter lending conditions and weaker business investment.
On the other hand, a commitment to keep rates low for a considerable time and the lack of conviction on a rate hike later this year could renew demand for US equities, including SMH shares. This scenario would promise extended stimulus while US companies continue to build revenues and profits.
Gains could take price back up to the previous highs near $56/share and possibly the formation of a triple top, which is still a valid reversal signal. An upside break past the tops would indicate that the uptrend has gained traction and that SMH shares might be in for more longer-term rallies for the next few months.
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