RenMac warns that the semiconductor sector has entered a "danger zone" and advises investors to switch from buying to selling.

Jeff deGraaf, Chairman and Chief Technical Research Officer of Renaissance Macro Research (hereinafter referred to as RenMac), warned in the latest report that the upward momentum of the semiconductor sector has reached a "danger zone," and investors should consider shifting from buying to selling. DeGraaf's analysis, using his developed "bubble monitoring indicator," suggests that although the growth dividend brought by artificial intelligence is still unfolding, the current overheating level of the Philadelphia Semiconductor Index (SOX) has reached historically rare levels. Especially after experiencing a rare 18-day consecutive increase, the index's performance is second only to the record during the peak of the internet bubble in 2000. He acknowledges that these overheating signals do not necessarily indicate that a crisis will immediately erupt in the next 1 to 3 months; however, historical experience shows that once such extreme technical conditions form, market returns typically show a marked downward trend in the following 6 to 12 month period. Regarding the recent record highs in the overall market (represented by the S&P 500 index), DeGraaf believes that the current momentum indicators are extremely strong, which has effectively shifted the burden of proof from the bulls to the bears. In other words, until a fundamental reversal in the trend occurs, it is difficult for the bears to prove that the market has peaked. Nevertheless, he still maintains that the current environment be characterized as the "late stages of a bull market," and specifically notes that speculative nature of the market is significantly increasing. From a historical perspective, the differentiation between semiconductor stocks and other sectors within the technology industry is reaching unprecedented levels. DeGraaf points out that the gap between the "winners" and "losers" within the tech industry is at extreme levels historically. The intense rift in performance within this sector, the last time it occurred was just before the burst of the internet bubble in 2000. At that time, market optimism was mainly focused on hardware and infrastructure stocks, while overlooking the weakening of software and service sectors. Similarly, the significant outperformance of semiconductor stocks over software stocks is evident now. RenMac data shows that when a sector doubles in price within just two years, and technical indicators suggest a disconnection between its valuation and growth prospects, it usually means that the industry is overstretching its future expectations, which is the core logic behind deGraaf's characterization of it as the "danger zone." Regarding current asset allocation, DeGraaf proposes a strategy suggestion that differs from mainstream bullish voices, that is to adopt the "dollar-cost selling" approach. He believes that rather than hastily fleeing the market when it reverses, it is better to systematically cash out profits in batches while the index is oscillating at historical highs. He emphasizes that investors should be thinking about "which factors may go wrong" rather than "how much more it can rise" at present. With the market pricing in future earnings perfectly, any slight profit deviation or marginal tightening of macro liquidity could trigger a sharp retreat in the semiconductor sector. This shift from a "buy" to a "sell" rating reflects the concern of technical strategists about the lack of sufficient breadth and depth support for the current market. In summarizing the current market situation, DeGraaf reminds investors to "keep a clear head in the frenzy." He admits that the overall market situation is still good, trends continue, and momentum is strong. However, beneath this prosperity, several structural flaws cannot be ignored. The typical characteristics of the "late stages of a bull market"strong momentum and weak structure coexistingrequire investors to have keen risk awareness while participating in the market. In fact, this concern is not isolated on Wall Street. BTIG's technical strategist Jonathan Krinsky also holds a similar view, observing that the current overbought state of the semiconductor index is the most severe in over eight years. This resonance warning from multiple technical aspects indicates that, although the long-term fundamentals of the semiconductor industry remain robust, the short-term technical adjustment pressures should not be underestimated.