You Must Watch Semiconductors vs. Nasdaq-100

The chart below shows a simple equation: / to gauge the relative performance of the Semiconductors (SMH) vs. the Nasdaq-100 index (QQQ).

The SMH ETF includes companies like NVIDIA and other leading chip manufacturers, which are critical to powering AI advancements.

On the other hand, the QQQ ETF comprises 100 major tech-related companies, including giants like Apple and Amazon, along with some semiconductor companies.

Although there is some overlap between the two ETFs, this comparison serves as a general gauge of the semiconductors' performance relative to the broader tech sector represented by the Nasdaq-100.

Observations on the importance of this comparison:

Sector Strength Insight: By analyzing the performance of semiconductors relative to the Nasdaq-100, investors can gauge the strength and potential of the semiconductor sector within the tech industry.

Investment Decisions: Understanding these dynamics can inform investment strategies, helping to identify whether to allocate more resources to semiconductor stocks or maintain a broader tech investment.

Market Sentiment: The performance ratio can also reflect market sentiment towards different tech subsectors, providing insights into which areas might be overvalued or undervalued.

Risk Management: Recognizing extreme levels in the performance ratio can help in risk management, indicating when semiconductor stocks might be overheating relative to the broader tech sector.

By keeping an eye on this ratio, investors can better navigate the tech landscape, making more informed decisions about where to focus their investments.