TMTB EOD Wrap
Good afternoon. QQQs -40bps led lower by semis, which finished -2.5% on the day while software & internet laggards led the way higher. Semis had a bid early at the open but immediately sold of through the late morning, for a peak to trough move of 6% although bounced nicely in the last hour of trading. GS pointed out that Momentum is having its worst two day selloff since 2022, with back to back 5%+ unwinds for the first since 2022:
Why the sell off and rotation?
A little bit of follow through from Friday, a little bit of the rates move, some positioning unwind, and well, semis are up 60% since the lows in late March with sentiment/positioning near highs, so a 7% drawdown in SOX over the past two days isn’t really a huge needle mover, all things considered. In fact, it wouldn’t surprise us to see a touch of the 20d and said as much in our weekly yesterday as a lot of semi charts were already showing signs of weakness late last week:
Given all the macro crosscurrents and charts, we think the most likely outcome is a 20d test in SOX, which is about 5% lower than here. We think that likely happens in the first part of the week before NVDA on Wednesday. We shorted some SMH late in the week as a hedge. After going through the mosaic, we’ll probably add on Monday if the market is up. To be clear: this is purely tactical talk and tactical hit rates are a lot lower when you are fighting against the prevailing trend, which is clearly up.
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We didn’t get that 5% move, but we got a 4% move down today at the lows — is that close enough to 20d? We’ll see. We still think market is digesting the Iran cross-currents as Oil was up another 3% today (although yields finished flat and Fed expects didn’t move much). Great thread in TMTB Slack here on the Iran situation.
Let’s get to it…
