Texas Instruments causes chip wreck, and there may be more pain ahead

There’s a chip wreck going on, and it’s Texas Instrument’s fault.

The chipmaker continued its tumble Wednesday following an earnings report that sent the stock careening Tuesday after the bell, dragging the VanEck Vectors Semiconductor ETF (SMH) down nearly 2% at $121.30 as it became the ETF’s worst-performing stock of the day.

Mark Newton of Newton Advisors believes Texas Instruments may not be the only chip stock in trouble. A few warning signs are appearing for the group, he says.

“[We’ve] started to see a lot of signs slowing down in this group, and after a 40% run since last December, it’s never a great sign to see a leading group like this start to wane,” he said Wednesday on CNBC’s “Trading Nation.”

Newton pointed out that an ominous “ending diagonal triangle” pattern is starting to appear in a chart of the SMH. This, paired with waning momentum, has Newton looking at the $115 level on SMH.

“Any move below $115 on SMH would be a negative and make me think that this group is about to turn down,” he added.

And the $115 price level is also the exact level Newton is eyeing on the chart of Texas Instruments as well. While the chart may be “holding its uptrend” for now, a break below $115 would spell trouble for the stock, he said. It closed Wednesday at $118.95, down 7.5%, but was up nearly 1% in Thursday’s premarket. 

The company has said the U.S.-China trade war is taking a toll on its business,  Chantico Global founder and CEO Gina Sanchez noted.

However, she believes in a broader “secular story” that still dominates the narrative around the chip stocks.

“The support you’ve had for the semiconductors hasn’t just been a cyclical trend, it’s been actually a really broad secular trend shift in terms of how we are conducting our economy,” she said in the same “Trading Nation” interview. “And so theoretically speaking, it shouldn’t be so tied to the cycle one way or the other.”

“The reality is they are really at the front end of this tariff tiff, and as soon as we get kind of some finality on tariffs, this probably goes away and we’ll head back towards that secular story,” she added. “But the tariff story does matter.”