The Traveling Trader
Founder of The Traveling Trader, Market-Open Livestreams
Semiconductor stocks have a plausible case to fall at least another 10% or so, as the pain expected before the midterms arrived earlier than most anticipated, in July. Chips are king, so their weakness drives the market. Tech should still come back with a vengeance and make this an easy buy again, as it did after COVID, DeepSeek, Liberation Day and the Iran war. x.comÂ
Tech and semiconductor bounces are mainly driven by less urgent hedge-fund selling rather than fresh buying. Per Goldman Sachs, tech is still being sold amid very low activity; there is no sign risk has been added yet. The unwind may be nearing its end, especially as hyperscalers stick to capex plans and Q3 semiconductor earnings look likely to be positive. Less crowded positioning and more normal multiples leave a healthier base for a longer-term rebuild. x.comÂ
Semiconductors' parabolic run is likely to end in a bear market, and record ETF inflows may be a contrarian warning. The sector's forward P/E was 12.8 at its 2022 low and 11.5 at its 2018 low, versus the 16.4 cited now in the quoted post. Past parabolic runs saw 43%-55% drawdowns; the previous record inflow came at a top. x.com x.com x.comÂ
Semiconductors look attractive because SMH's largest volume since July is appearing as it defends last month's and last week's lows. This area is the concentrated spot for the ETF's largest institutional investment ever. x.comÂ
War escalation and the midterms will keep investors from increasing gross or net semiconductor exposure. SOXX will take out its July lows before any sustained rally; against a suggested 5% dip and 50% rebound, the path is '5% down then 100% down.' x.com x.comÂ
The S&P 500's heavier semiconductor weighting makes its coming pullback likely larger than the 4% decline in the comparable 1995 period. Its current 16-17 week cycle looks more like November 2025 to March 2026 than the last bullish cycle, pointing to at least the lower Bollinger band in November, with a cycle low due in the month's second half. x.com x.comÂ
Semiconductor earnings have outpaced prices, making the selloff look more like forced positioning than a broken growth case. Since January 2025, the SOX rose about 114% while reconstructed forward earnings rose about 198%; the estimate is approximate. Hedge funds sold global tech at a greater-than-three-standard-deviation pace in October 5-16, a pattern seen near earlier lows, though another sharp flush could come before a reversal. x.comÂ
Intel's fading options activity at $70 and $80, alongside a strong $100 node, improves its near-term setup. The stock bounced at its 200-day average alongside SMH and SOXX, supporting a $98-100 target this week; $110 calls are further out and $130 calls are for November-December. Dealers seem to have moved their hedges, though $80 may still come after October 30 earnings. The share target remains $140. x.com x.comÂ
Semiconductors aren't bottoming, because a major player who lost tens of billions just raised about a billion to pile into semiconductor calls, as revealed via @zerohedge. Ken Griffin will most likely once again take money from Leopold Aschenbrenner. x.comÂ
SpaceX's beat has relit the AI trade and given semiconductors a fresh catalyst. Chips led Wednesday's close, with AMD, Nvidia, Micron, Marvell and Broadcom all up, but SMH is still below its 21-day average near 594. It needs to hold 536 and reclaim 562 before buyers regain control; 594 is the next test. x.com x.comÂ
Semiconductors could gain from desks buying back exposure sold ahead of leveraged-product rebalancing if markets recover even mildly. The expected selling flow was about $16B, and a strong signal also favored leveraged semiconductor exposure through SOXL and Nebius. There is no clear read on whether the market has bottomed over a longer horizon. x.comÂ
