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Watch for this key level in the semis space for a buy signal, trader says

Watch out for this key level in the semis space, technician says

Semis are coming out of a volatile summer stretch.

The SMH semiconductor ETF, which counts Intel, Texas Instruments and Nvidia among its top components, rallied 26% from a June low to the year's peak in July. From that top to an August low, it pulled back 13% before moving its way back up to previous highs through this month.

Any further weakness could present a buying opportunity, says Mark Newton, founder of Newton Advisors.

"The near-term downtrend really has not caused hardly any deterioration in the broader trend," Newton said on CNBC's "Trading Nation" on Wednesday. "Even on a near-term basis, my thinking is the area right near $115 on the SMH is a level to buy into this. It's formed a giant triangle pattern in the last five months."

The SMH ETF would need to fall more than 4% to reach $115. Newton says if it pulled back even further to $107, roughly 11% below current levels of $120.21, he would reconsider his bullish case.

"This push to new highs has caused momentum to stall out and actually is at lower levels. So that could be an intermediate term concern, but you really need to see the price weakness. And until that happens, it's still right to continue to buy dips in this as trends remain resilient," said Newton.

Gina Sanchez, CEO of Chantico Global, isn't buying the near-term bull case right now without some resolution on the trade war with China.

"It's easy to sort of miss the fact that that price is made up of an earnings trend and a multiple trend. And those two are actually going in totally different directions," Sanchez said in the same intervew. "You're actually seeing earnings falling in this sector because of very real trade impact. However, multiples have managed to remain high."

Analysts surveyed by FactSet now anticipate earnings on the SMH ETF to contract 27% in the September-ended quarter, far worse than the nearly 9% growth expected a year earlier. The ETF's forward multiple trades 17 times earnings, up from 12 at the beginning of the year.

"If you believe in that long-term cycle, then you have to think that earnings will eventually recover from here, and will catch up with those multiples. But where we are right now, you cannot ignore that China is both a big buyer and a big seller in this market," she said.