A 'perfect storm' is brewing for chips stocks, and that may mean the worst is yet to come 

Semiconductor stocks are getting wrecked.

The chipmakers have taken on water in November, falling nearly 2 percent and compounding losses suffered since the beginning of fall. Stocks like Qualcomm, Skyworks, Nvidia, Micron and AMD are all sharply lower in the past week.

The worst could still be ahead for the group, says Boris Schlossberg, managing director of FX strategy at BK Asset Management.

"It's a perfect storm for the semis at this point," Schlossberg told CNBC's "Trading Nation" on Monday. "You have a slowdown in China, you have a saturation of demand in the Western markets, you have a rising interest rate environment, and you have the U.S.-Chinese trade war tensions which are putting pressure on prices."

An escalating trade war between the world's two largest economies has triggered fears over supply-chain costs, while slowing iPhone demand has raised concern over peak growth in the smartphone industry. Semi stocks were awash with more losses on Monday after Apple supplier Lumentum warned of reduced shipments to a major customer.

"The general history of semis is they go from grossly overbought conditions to grossly oversold conditions, and I don't think we're anywhere near the capitulation point," said Schlossberg. "I think there's more to come to the downside before it finally washes out."

The SMH semiconductor ETF has fallen 16 percent since August. A 12 percent drop last month marked its worst October performance ever.

JC O'Hara, chief market technician at MKM Partners, says the charts also point to more trouble ahead for the chips stocks.

"Coming into 2018, a pause was likely — that's following two years of 35 percent gains, so a pause or consolidation was actually healthy — but as this pause continued to draw out as the year progressed, we started to lose technical strength," O'Hara said.

The SMH began to ride its 40-week moving average over the summer before breaking sharply lower in September, a move that suggests a broken trend, O'Hara said. The ETF now needs to hold support level.

"We can point to some support at $86, which was those October lows, but a break below that and all bets are off," said O'Hara.

The SMH still needs to drop another 6 percent before reaching support at $86. It has not traded at those levels in more than a year.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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