Semi stocks got crushed on Wednesday ahead of chipmaker Advanced Micro Devices' earnings report after the bell.
The stock fell more than 6 percent on Wednesday, bringing its total October losses to 25 percent.
Despite the weakness, Matt Maley, equity strategist at Miller Tabak, pointed out AMD is still in the midst of an exceptional rally. After all, the stock is still up an eye-popping 130 percent this year.
"Here's a stock that's had this huge run, and it got so overbought; you rarely see a [relative strength index] chart get as overbought as that one was in September. So the fact that it's fallen so much recently actually isn't that big a deal because it hasn't broken any support levels. You want to look at the $22.15 level. That's where the trend line comes in from the summer lows, before it would really cause a major red flag," Maley said Wednesday on CNBC's "Trading Nation."
Broadly, however, Maley is cautious on the SMH, the popular semiconductor-tracking ETF. It was tracking for its worst month in nearly a decade, with a month-to-date loss of 14 percent.
Another chip name, Texas Instruments, fell on Wednesday after reporting quarterly earnings late Tuesday that disappointed investors. That stock was down more than 4 percent on Wednesday.
"This group needs to bounce back immediately and regain its 200-day moving average, or we're going to have big problems," Maley said, referring to the SMH.
Investors would be wise to stay on the sidelines instead of putting fresh money to work in semiconductors at this juncture, said Michael Bapis, managing director with Vios Advisors at Rockefeller Capital Management.
"You look at the overall market, and there's been nowhere to hide. So even if they were performing well, they wouldn't be doing well," Bapis said Wednesday on "Trading Nation."
"The other part of this is the semiconductor index has gone way up over the three and five years, so there is going to be profit-taking," he said. "What concerns us is most of the companies in the index are trading at super-high valuations, you may see demand slowing, and the perception is such that with these trade and tariff wars, with everything going on in China and across the U.S., that people are concerned with how this settles out."
AMD shares were trading 6 percent lower on Wednesday afternoon, slightly off session lows, at $23.53 per share. The SMH fell by 4 percent.