Chips just snapped an eight-day losing streak
The bounce was narrow: seven of 11 sectors closed lower
The stocks that can’t hold good news are telling you something
So if you didn’t hear.. chips finally bounced today.
After losing over 15% over eight straight down days. The longest streak for the Philadelphia Semiconductor Index (SOX) since October 2008.
Then today it closed up 1.6%. The NASDAQ jumped over 1%. I’m sure half of Substack is already calling the bottom.
Except me. I’m not. Not yet.
Because the most interesting thing that happened today wasn’t the bounce.
It was the fact that the most important stock right now couldn’t hold it.
Market leading stocks, brutal truths and no-BS.. in your inbox after the close.
They want you to buy this dip so badly
CoreWeave (CRWV) was at the center of last week’s selloff. Down more than 25% on worries about a debt load of roughly $50 billion.
This morning Goldman upgraded it to Buy. The stock popped about 7%.
By the close? Down 0.4%.
Think about that. The best headline it’s had in months. Arguably the most important investment bank in the world telling you to buy it.
And sellers still used the pop to get out.
Nothing about the company changed between the open and the close. The upgrade was the same at 4:00 as it was at 9:30. The only thing that changed was who was willing to pay up for it.
Meanwhile retail just poured more money into the 3x semiconductor ETF (SOXL) than ever before..
It’s absolute insanity out there. There’s simply no slowdown whatsoever in the amount of money retail traders and investors are willing to throw at this dip.
In great times it works incredibly well. But in bad times it can lead to blowing up accounts.. quickly.
Ask yourself right now what kind of market it feels like. You’re probably not far off.
I care more about the stuff that’s supposed to happen, but doesn’t..
I learned a long time ago that if something in the market is supposed to happen.. and yet the exact opposite happens.. that’s the “oh shit” moment you need to be paying attention to.
It’s a lesson I keep relearning over and over.. and over.
A bounce tells me that sellers are taking a breather. But it doesn’t tell me who the buyers are.
After a flush, the first green day lifts almost everything. Leaders.. laggards.. it’s the days after that reveal the difference.
During a selloff, everybody gets hit. That’s not necessarily information. What matters is who gets hit less.. and who comes back first when the selling stops. That’s relative strength. And it’s how you can pinpoint the next leaders after extreme downside moves.
The stocks I want are the ones that bounce first, bounce the hardest, and hold the bounce. The ones that can’t hold good news are telling you something as well. To stay the hell away.
There’s no award for buying underperforming stocks. Focus on the strongest.
The market is still walking on eggshells
The indexes masked a somewhat weak day today.
Seven of the 11 S&P 500 sectors closed lower. Consumer discretionary (XLY) led, up 2.7%, mostly because Amazon jumped 5% on a Morgan Stanley “top pick” call and Tesla added 3.8%. Tech was up 1.2%. Utilities fell 2%. Real estate fell 1.2%.
And the financial backdrop isn’t exactly very accommodating either. As Randy pointed out this morning in our State of the Market session inside of TTI, the 10-year yield continues to climb to new highs, credit spreads are elevated and the National Financial Conditions Index is climbing once again.
All three of these are typically precursors to a bigger downside move.
So no, I’m not reading today as “all clear, buy the dip!”
I’m reading it as day one of a potential bottom. And that’s all it is.
What I’m Watching Tomorrow
Do I think the chip stocks that retail traders and investors have just YOLO’d into go straight up from here? No.
Bounces after a streak like we’ve seen can be violent in both directions. Meaning tomorrow can be just as bad as today was good.
Here’s what I’m watching:
1. Does the chip bounce hold a second day? One green day after eight red ones is a start. Now show me another one.
2. Who’s leading it? I want to see the names that held up best during the selloff back out in front. That means ASML, NVDA, TSM and more.
3. Is good news getting rewarded? Netflix reports after the close tomorrow. Wednesday night is the big one: Meta, Tesla, Lam Research and Texas Instruments. If good numbers get sold, that tells me more than any upgrade a slimy investment bank says does.
That’s what this week is about. Every night, one piece of how I tell a real leader from a losing stock simply bouncing.
Tomorrow: how I use relative strength during a selloff to find out where the best stocks to own are.
Everybody saw the bounce today. Now ask yourself why it didn’t hold.
Follow the money,
Hamilton
Founder, The Trading Initiative
P.S. This week I’m giving away the framework one piece at a time. Inside The Trading Initiative, members watch us apply it in real time: the Trade Desk, the nightly Desk Notes, our entries, invalidation levels and how we manage the trades. If you’d rather work through the sorting process with us than read about it afterward, here’s TTI Membership.