Market Outlook
Talk about a day to take notice. Since the April low, the S&P has railled 20%, Nasdaq has railled 34%, Tech has climbed 50% and Semi's a mind numbing 78%. In two months time, we received nearly 2 years of returns from the S&P, 4 years out of Nasdaq, and 5 to 7 years worth of returns from the tech and semi space in months.
So yes, seeing a semi name might have stung on Friday but we can't forget the insane climb they have gone on. AMD has gone on a 500% run this year with most of those returns coming in the last two months.
Euphoria in the market is always hard to see in the moment, but so clear after the fact as WDC lost 11% on Friday, yet it has up nearly 2,000% in the last year. It will be very interesting to see how long they can hold onto these gains.
Now did anything really crazy happen in the Semi's last week for this harsh Friday sell off? Sure Broadcom's earnings weren't a knockout.
There was a strong jobs report on Friday, which causes treasury yields to increase and if jobs are strong, the new FED chair has no "excuse" to lean on cutting rates. Tech and Semi names love low rates, yet they and all of us for the most part hate high rates. Unless you like sitting in a money market. So those are two reasons for the sell off on Friday.
But the real one, really just seems to be profit taking. We can go back and look at any previous bubble in any space or sector. After 50-100% returns in a month or 500-1,000% returns in a year. Smart money looks for the exit to put the money to work in somewhere less expensive.
In the moment when a sector or space is all the rage, it is hard to think of AMD falling back to even $200. So let's rewind the clock to 2020, when tech names were going gang busters. ETSY was up 1,000% in a 2 year span. Along with most tech names climbing and climbing with only new highs in sight. I remember this period vividly because members at the time who were starting to use M1 for long term stock ideas, across the board were only picking tech names.
All thinking and expecting future gains to continue as at that time, that is all what we knew. But once the confidence in that trade started to break, so did the price action. ETSY and alot of names still went on a final push before topping out. And maybe Semi's still have another trick up there sleeve. But once confidence gets tested and it fails. Friday was a clear sign of that failure of confidence. It becames a game of exit from smart first to stubborn last. One of the most stubborn traits that traders die on is waiting to sell it at the high just before the first sell off starts.
We are in the game of catching the meat of the move, not trying to time to bottoms or tops. This is not a panic and run for the exit on everything. But the market gave us a very clear sign to take notice of the change from easy breakout market to what will most likely be a market starting to base out.
The market is going to start to trade in a range where 760 acts as resistance. Even Energy is showing us that after a massive rally and the steep trend breaks, it is hard for the new highs train to continue.
There could be a final push or run in the leading sectors but it is more wishful thinking. I would expect price action in Tech and Semi's to follow what we saw with Energy. As they topped out at the start of April, money poured into Tech and Semi's almost to the day. As money comes pouring out of Tech and Semi's where could it head next? That is the question to think about and what we can discuss and look for in the chat this week.
From Bennett
Founder Big Picture Trading
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