Chip stocks have had quite a run this year. Technicals say be careful from here

The VanEck Semiconductor ETF (SMH) has significantly outperformed the S&P 500 this year, up 39% YTD and 20% in the past month. However, its 14-day Relative Strength Index (RSI) has surged above 80, a level historically indicating extremely overbought conditions. In the three prior instances since 2015 where SMH's RSI exceeded 80, the fund experienced negative 6- and 12-month forward returns, suggesting that current high momentum and stretched positioning may warrant tighter risk management despite the small sample size.

Analysis

Semiconductor stocks have been on a tear and rank among the best performers this year. The VanEck Semiconductor ETF (SMH), a widely watched gauge of the group, is up 39% year to date compared to the S & P 500's 14% gain — and SMH is up nearly 20% in the past month. But is the move too far, too fast? This week, SMH's 14-day relative strength index (RSI) jumped above 80, a level many technicians consider extremely overbought. RSI is a technical trading signal that measures the speed of recent gains or losses: below 30 is typically considered oversold while above 70 overbought. A read above 80 is unusual for an ETF like SMH and, over the past decade, as tended to precede weakness rather than mark a fresh leg higher. Since 2015 there have been three other occasions where RSI's SMH crossed above 80: at 6- and 12-months, forward returns were negative each time. The 2021 setup was the ugliest with the fund dropping a third of its value over the following year. The June 2024 signal wasn't as severe but the fund still fell more than 12% over the next six months and 5% a year later. The most overbought among the group right now are ASML , Lam Research , Teradyne and Micron , each with an RSI above 79. None of this is destiny — keep in mind this is a tiny sample size — but when momentum runs hot and positioning stretched, history might argue for tighter risk management. ( Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here . ) The semiconductor sector, as measured by the VanEck Semiconductor ETF (SMH), has demonstrated significant outperformance, with a 39% year-to-date gain and a nearly 20% surge in the past month, far exceeding the S&P 500's 14% advance. However, this strong momentum has driven a key technical indicator, the 14-day Relative Strength Index (RSI), above 80, a level considered extremely overbought. Historical precedent for the SMH ETF is cautionary; the three occasions since 2015 where the RSI surpassed 80 were all followed by negative 6- and 12-month forward returns. The 2021 signal preceded a 33% drop in the fund's value over the subsequent year, while a more recent signal in June 2024 was followed by a 12% decline over six months. This overbought condition is not isolated, with key components like ASML, Lam Research, Teradyne, and Micron also showing RSIs above 79. While the historical sample size is small, the consistent pattern of negative returns following such extreme momentum suggests that investor positioning is stretched and the risk of a near-term pullback is elevated.

Key Decisions for Investors

• Investors with substantial long exposure to the semiconductor sector via SMH or individual names like ASML and Micron should consider tightening risk management protocols, such as raising stop-losses or trimming positions to lock in recent, substantial gains.
• Initiating new long positions at current levels carries a heightened risk profile, as historical data since 2015 indicates a consistent pattern of negative 6- and 12-month returns following similar RSI readings above 80.