Applied Materials is surging.
The company and fellow chipmaker Nvidia boosted the SMH semiconductor ETF on Thursday after topping quarterly estimates. Those gains add to a major comeback for the semis space. The ETF, whose top components include Intel and AMD, has rocketed 9% in the past month. Applied Materials jumped 5.5% in Friday's premarket, while Nvidia was up slightly.
There's one other stock that could foretell the next move in the space, says Matt Maley, equity strategist at Miller Tabak.
"We don't want to lose sight of what's been going on in Micron Technology," Maley said on CNBC's "Trading Nation" on Thursday. "Over the last four years, it has been incredibly correlated [to the SMH semiconductor ETF] especially on a directional basis. … Every time Micron starts to change the trend and starts to rally, the rest of the chips follow it. And the same thing on the way down, the SMH tends to follow it."
Now, Maley says recent moves in Micron Technology shares are sending a warning signal to the semis space.
"When the SMH made a new high in November and held that high, Micron made a lower high and actually started to roll over a little bit," said Maley.
Now, it appears to be forming a classic head-and-shoulders pattern, says Maley. That is a typically bearish formation that suggests a trend reversal – it is formed by a high, a higher high, and a lower high.
"The stock hasn't broken its neckline, and it could bounce back and there's nothing better than a failed head-and-shoulders pattern, but I do think that if you see a further breakdown in Micron, investors are going to have to be a lot more discriminating on which stocks they like in this sector," said Maley.
Mark Tepper, president of Strategic Wealth Partners, says one stock in the group could be a sure bet as a long-term hold.
"In the semi space, our focus is really on those companies that are in the higher-growth end markets that we want to be in and so gaming, data centers, AI, autonomous vehicles, 5G. So we own Broadcom as our 5G play, and we own Nvidia which covers the rest of the bases," Tepper said during the same segment.
Signs of building momentum should take Nvidia even higher, says Tepper.
"The stock was at almost $300 last year, got whacked all the way down to the $120s and now it has strongly moved back above $200. Since the end of May, it's outperforming the broad semi index by 20%. And I think there's more room to run," said Tepper.
Disclosure: Strategic Wealth Partners holds NVDA.