Fairlead founder: The semiconductor market is showing a parabolic overheating trend, it is suggested to focus on software stocks for a reversal opportunity.

Katie Stockton, founder and managing partner of Fairlead Strategies, pointed out that the surging rally in semiconductor stocks may be about to take a breather. In an interview on Tuesday, Stockton emphasized that the rise of the VanEck Semiconductor ETF (SMH.US) shows significant parabolic characteristics on both an absolute and relative basis. Despite the continued strong upward momentum, technical indicators have issued warning signals of market overextension. Stockton explained, "When we look at the ratio of the VanEck Semiconductor ETF to the S&P 500 index, and the ratio of the Software Industry ETF (IGV.US) to the S&P 500 index, both are currently sending opposite signals." According to the DeMark indicator, the semiconductor sector ratio is already in overbought territory, while the software sector shows oversold characteristics. This divergence suggests that the popular institutional strategy of "long Semiconductor Industry ETF while shorting Software Industry ETF" may begin to unravel in the short term. Stockton specifically pointed out that memory stocks like Micron (MU.US), Western Digital Corporation (WDC.US), and Seagate (STX.US) have not triggered the same countertrend sell signals as the entire semiconductor sector. However, she also cautioned that investors should be cautious of Micron's recent trend of consecutive gap-up openings - traders should closely monitor whether the stock can hold these gaps in the coming days. For investors seeking opportunities, Stockton recommends focusing on the Software Industry ETF (IGV.US), Healthcare Industry ETF (XLV.US), and more attractive sectors such as Bitcoin. She particularly noted that these sectors have shown signs of improvement in mid-term momentum indicators after the market strength in April. From a macro industry perspective, the semiconductor sector set a historic record of continuous gains for 17 trading days, signaling the inherent risk of mean reversion. While research institutions like Deloitte predict that global semiconductor sales will approach the trillion-dollar mark by 2026, the long-term fundamentals of AI chips remain strong. However, the divergence between short-term valuations and price trends makes tactical reduction in exposure the mainstream strategy currently.