By Jared Blikre

Chip stocks are one bad session away from a bear market.

The PHLX Semiconductor Index (^SOX) fell 4.3% Thursday, breaking the neckline of a head-and-shoulders top and its make-or-break 12,000 level.

That leaves the index less than 1% above 11,708, the level that would mark a 20% closing decline from its June high and confirm a bear market. The iShares Semiconductor ETF (SOXX) is slightly closer.

A head-and-shoulders top forms when a market makes three peaks, with the middle one highest. The line connecting the two pullback lows is the neckline, and Thursday's close below it suggests buyers finally lost the level they had defended twice.

Chip stocks have spent the past three weeks taking one step forward and two steps back. The latest step down makes 11,000 the next downside technical target, nearly 7% below Thursday's close.

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The damage is already enormous.

Global chip stocks have erased about $3.3 trillion in market value since June 22. This includes major Asian names that do not trade in the US, such as Samsung Electronics (005930.KS), and names that have not traded here over the full period, such as SK Hynix (SKHY, 000660.KS).

Yet Nvidia (NVDA) is nearly flat over that stretch and remains the best-performing large-cap semiconductor stock in the group.

The breakdown is happening despite Nvidia, not because of it.

Much of the pain has landed elsewhere, especially in memory stocks. Micron, Samsung Electronics, and SK Hynix had already dragged the memory complex into a bear market, while dozens of individual chip stocks are down at least 20% from their June 22 levels.

Thursday's broader market sell-off also offered an important twist. Investors did not simply rotate into the Magnificent Seven, as they had during other recent chip sell-offs.

MAGS fell, while the equal-weighted S&P 500 rose on the advances of transports, regional banks, homebuilders, China stocks, and several defensive sectors.

This was not an everything-down session. It was yet another hard step away from the market's former leadership.

A forceful close back above 12,000 on Friday or Monday would mark a false breakdown and could quickly flip the setup bullish. Fail to reclaim 12,000, and 11,000 becomes the next test.

Jared Blikre is the global markets and data editor for Yahoo Finance. Follow him on X at @SPYJared or email him at jaredblikre@yahooinc.com.

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