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Introduction

When we made the case in our July 29 report that technology stocks were carving out a short-term bottom—one that could ultimately help turn the broader indexes higher—we certainly didn't anticipate a stampede back into the space.

As we've documented, July produced one of the most violent momentum unwinds on record, with technology—and semiconductors in particular—sitting at the epicenter of the selloff. Before the July 29 low was forged, it was shaping up to be a month most technology investors would rather forget. The sector had fallen roughly 8%, putting it on pace for one of its worst Julys in decades.

What a difference a few weeks can make.

The technology sector has come roaring back, quickly reclaiming lost ground and once again asserting itself as a major driver of the broader market. The same group investors couldn't sell fast enough only weeks ago is suddenly attracting capital again.

The Beast is Back.

Peel back another layer and the concentration becomes striking. All 10 of the S&P 500’s worst-performing stocks were tied to the AI infrastructure theme, illustrating just how severe—and concentrated—the unwind had become.

What makes the move even more striking is that July is historically one of the strongest months of the year for growth stocks, particularly Semiconductors. 2026 was a dramatic exception, with the group getting hammered during what is typically its strongest seasonal window. Now, just weeks later, the beast has come roaring back.

In fact, since the July 29 bottom, Technology has surged back to the top of the sector leaderboard—a dramatic reversal from July’s historic unwind.

Should we be surprised? Not really. This is a bull market, after all. Leadership may rotate, but the idea that this bull market can continue indefinitely without Semiconductors participating is difficult to embrace. Bull markets need leaders, and the Semis remain the undisputed heavyweight of this cycle.

That doesn't mean the group needs to immediately reclaim its all-time highs for the broader bull market to continue. But it does need to keep improving. A failure to decisively reclaim the important 10-week moving average followed by another rollover would be a warning sign.

In our August 9 report, we outlined several technical hurdles that needed to be cleared before an all-time high retest could become our base case. Despite our bullish bias, those thresholds still matter. Thus far, we've come close—but no cigar.

As much as we'd like to declare the group out of the woods, price still needs to confirm. And time may be running short. A new weekly DeMark Sequential 13 sell could print as early as next week, which deserves our increased attention if SMH fails to clear its remaining resistance beforehand.

Recall that the DeMark Combo 13 sell was a key input behind our June 28 short Semiconductor call. SMH subsequently declined roughly 25% peak-to-trough. More importantly, each of the last three weekly 13 sell signals has been followed almost immediately by a 15–25% decline. That's a track record we aren't willing to ignore.

The message is simple: break out soon, or the risk profile begins to change.

In our August 9 report, we identified two key thresholds SMH needed to reclaim to increase the probability of an eventual all-time high retest. Following strong earnings across the space, one of those thresholds—the AVWAP anchored from the peak—was breached on Wednesday. However, the breakout lacked conviction, with price arguably rejected at the second hurdle: the 50-day moving average. Close, but no cigar.

Adding to our caution, the Money Flow Index (MFI) has yet to break its prevailing downtrend. Until price and money flow confirm together, we remain constructive—but not convinced.

One of the key signals supporting our view that Semiconductors had likely bottomed in our August 2 report came from the KOSPI, which formed a large weekly hammer reversal. Given the index’s heavy exposure to the global semiconductor complex, we viewed the reversal as an important confirming signal.

Here is what we wrote at the time:

Fast forward to today, and the KOSPI is confirming a higher low. If it can finish the week strong, it would provide another important piece of confirmation and increase the probability that SMH clears our remaining upside thresholds.

Wednesday’s relatively benign CPI report helped cool expectations for additional rate hikes, but not enough to eliminate the risk entirely. For now, the rate debate remains alive.

While expectations for a September rate hike declined following the report, fed funds futures continue to price more than one full 25-basis-point hike by year-end, suggesting the tightening debate is far from over.

Thus far, the 2-year Treasury yield has failed to reclaim the bearish rising wedge and remains vulnerable to further downside, with the MACD continuing to inflect lower.

The DeMark 9 buy in the 2-year yield did produce a bounce, but not enough to alter the broader technical picture. Today’s move lower pushed the signal closer to expiration while triggering a new downside count (green 1 below the bar). While we would prefer to see a more decisive breakdown in yields, the technical backdrop continues to weaken. We suspect a more meaningful move lower may require greater clarity around the Iran conflict.

In our August 9 report, we highlighted several developing DeMark signals that had the potential to stall the rally. With those counts now progressing, it’s time to reassess the setup.

Let’s review the charts.