Stock Trends
Sin a little
Good morning,
If you’ve followed me for a while, you know my portfolio management philosophy is pretty simple. Overweight uptrends, underweight downtrends. Especially on a relative basis versus a benchmark, this is the foundational tenet for how I view markets and how I run the ETF portfolios.
It also flows through how we pick stocks for the Hot List.
Cliff Asness, the great founder and portfolio manager at AQR, is not a market-timer or technical strategist.
But. He has a great quote and whitepaper on when he advises to “sin a little”, market-timing being the sin.
And sinning a little (just a little) is how I view semiconductors here. They are undoubtedly still uptrends, and my advice has been to be neutral or market-weight, not betting on them, but not betting against them.
But if there was ever a time to “sin a little”, and be underweight semiconductors (or outright short them if that’s your game), I think the time is now.
Since we’re off next week, I’ve added a few ETF and top-down charts at the start of some sections to set up the single-stock charts. We’ll start with this week’s reversal at all-time highs for semis and review some laggards worth taking a shot against.
We’ll also look at:
Real estate long ideas
The industrials sector breaking out
Biotech
Hot List updates
and more!
Short semis against these levels
Extreme overbought + historic inflows + bearish momentum + reversal at all-time highs = “Sin a little”
We’ve shown SOXX at the most stretched vs. its 50-DMA since the dot-com top, and an 18-day run that bests anything seen even then. Now we’re seeing the type of buyers’ capitulation that shows everyone is in the pool. Just look at how extreme one-month inflows into the SOXX are, and that’s relative to the entire AI boom. It was just in time for a bearish momentum divergence and Tuesday’s sharp reversal from all-time highs 👇
The trade is simple. Short/underweight semis if SOXX is below $630. It gets above that, and we’re wrong, but you can see that yesterday’s bounceback didn’t come close to challenging those highs.
Now, what are some of the weakest semis to short?
ON: ON Semiconductor
Peaked back on June 3 and has a H&S top playing out. Was the worst performer and down again yesterday despite the bounceback in the broader group.
MPWR: Monolithic Power Systems
A close below $1412 would complete a top and likely send MPWR at least back to its 200-day moving average.
AVGO: Broadcom
Of the top 25 holdings in the SOXX ETF, only one has recently closed below its 200-day moving average vs. the S&P 500: Broadcom. A 5% gain yesterday put it back above there, but if the absolute chart is below $404, we want to fade this rally.
