The last time chip stocks did this, they dropped nearly 20%
The semi surge could soon hit a wall.

Chip stocks reached a new all-time intraday high this week, driving the broader technology sector to fresh highs as well. But with the group now sitting at those inflated levels, market watchers are starting to worry that the rally could run out.

"I'm quite conflicted on this one because the fundamental backdrop isn't very good, but there's no question: the fact that the [VanEck Vectors Semiconductor ETF ] has been able to make a new higher high is bullish," Matt Maley, chief market strategist at Miller Tabak, said Wednesday on CNBC's "Trading Nation."

However, looking at a 1½-year chart of the VanEck ETF, ticker SMH, the picture didn't look quite as pristine to Maley, who also runs financial blog and newsletter BTFNow.com.

"It's running hot. It's overbought," he said, pointing to the SMH's relative strength index. "It's more overbought than it was in April just before it began a 17% correction, and it's more overbought than it was on several other occasions in the last 18 months just before the group rolled over."

That calls SMH's recent "higher high" into question, Maley said, adding that it "looks like it's poised to take a little bit of a breather."

"However ... if after that breather, or even immediately, the group makes a more substantial higher high, it's definitely going to be bullish for the group," the strategist said. "And, as we learned last year, it was a key leading indicator for a downturn in the fourth quarter and it was a powerful leader in the rally in the first four months of the year. So, whichever way this thing eventually breaks is going to be very, very important for the broad market as well."

Gina Sanchez, founder and CEO of Chantico Global, also harbored reservations about the chip stocks, particularly heading into the second half of 2019.

"I think that the pop you're seeing really is just because valuations have been so depressed since the U.S.-China clash really started taking hold," she said in the same "Trading Nation" interview. "So, you get a Texas Instruments or a Teradyne outperforming expectations, and bam, the stock breaks out and the whole industry breaks out."

But as well as Texas Instruments' and Teradyne's second-quarter earnings reports went over on Wall Street this week, Sanchez said the group's "fundamental headwinds" were still very much in play.

"One, you've got a cut in production from China. That should be good, but you have massive oversupply, and that massive oversupply is meeting weakening demand," she warned. "That's really what's going to probably drive lower revenues in the second half of the year. This industry thought it was going to get a second-half bounce; I don't think we're going to see that. And so I think if you see anything, it'll be valuation-driven, but it's going to be capped by the fundamentals."

The SMH was down nearly 2% midafternoon Thursday, but has rallied close to 40% year to date.

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