Avoiding Tech, Looking for Opportunity Elsewhere as Earnings Hit
Painful chip selling produced healthy rotation rather than broad fear.
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It was another messy day for the market but painful selling of semiconductors and AI infrastructure triggered strong rotation into other areas of the market. Despite the chip sector dropping 3.5%, breadth was 53% positive and new 12-month highs were comfortably ahead of new lows.
Damage Did Not Spread
The big danger when key leadership groups like semiconductors fall apart is that they will drag the rest of the market. Typically when a well-loved group is hit there is a good likelihood that it will scare folks out of other areas as well.
That has not happened to this market and that is a major positive. Investors aren’t scared that the entire market is going to blow up. They are handling a shift in the view of the semiconductor sector and related groups in a healthy way. They are moving into other groups that still have solid fundamentals and valuations and are optimistic about upcoming earnings reports.
The biggest problem is that we still have significant news events coming up starting with the FOMC interest rate decision on Wednesday and then a slew of important big-cap technology reports. This news is likely to cause some whipsaws, however investors have already shown that they can handle it and will just rotate into other areas.
This has been tricky to navigate as one minute the market looks like death and then suddenly money is flowing into groups like the Magnificent Seven, drugs and retail. Oil was down sharply again which also helped matters and bonds strengthened into the Fed.
Game Plan
My game plan has been to avoid the tech sector and watch for mispricing in other areas of the market as we head into earnings reports. I’m still doing little but am nibbling at a few things that are taking hits and finding some support.
We will likely have some positioning action in front of the Fed news on Wednesday but I expect elevated volatility as the news flow hits.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
