It’s Still the Semis’ World… Until It Isn’t
What if the semiconductor stocks start acting like Amazon?
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Should I begin once again by noting that it is the semis’ world and we’re all just living in it?
Two days ago I complained that there are over 3,000 issues that trade on the NYSE and the S&P 500 was at a new high, yet a mere 100 stocks were at new highs. Wednesday the S&P backed off for the first time in 10 days and there were 100 stocks making new lows.
I know in the last month or so we have seen all these so-called studies that show that the market is okay even if it is narrow. Apparently it is okay when only a handful of stocks control the indexes and keep it cranking higher while everything goes lower.
I have no studies like that for you. But I do know that when there are fewer stocks making new highs than lows on the NYSE it feels to me like the foundation is on shaky ground. Why? Because what if—and I realize right now it’s so hard to conceive this happening—tech stocks actually correct? What if the semis actually have a proper pullback?
I am fond of saying good charts turn bad and bad charts turn good so I ask you to put your hand over the month of May on the chart of Amazon (AMZN). The stock had done nothing wrong. Then it corrected from $280 to $255. No big deal. But you see that rally to $275 in late May? That is a lower high. Now the stock has made a lower low (lower than mid-May).
Right now it’s hard to conceive a semiconductor stock doing that, but a month ago it was hard to imagine Amazon would do this, wasn’t it? Now the stock is down 10%.
I don’t have a strong view on how to trade AMZN here because it has some support in this $245-250 area from those highs in January. But I can tell you if the stock comes down to tag that line I suspect there will be some “reason” or narrative thrown around and folks will all of a sudden be cautious on it. Yet down there I suspect it would look okay. Down there I suspect it would be oversold. It would also meet a measured target.
My point in this exercise is to point out proper corrections are okay. They reset sentiment. They shake out weak holders. They set the charts up better. But somehow everyone wants to buy the stock 10% or 20% lower yet to get the stock 10% or 20% lower there is usually a reason and that reason is scary, so when the time comes, no one is interested in buying it anymore.
In any event, the overbought condition has been working on the market for two days now. Let’s see if we can get back to an oversold condition and change that complacent (bordering on giddy) sentiment.
