Bounce...Or Will The Bull Be Renewed?
1.) BOUNCE - Last week brought some real damage to the AI Trade, with some of the big names missing earnings and getting bludgeoned for it! Google, Amazon, Intel, Meta...all whacked. Some AI names are down over 50% since June. And leader of the AI pack, Nvidia, is even down -10.7% over the last month and they report earnings on the 17th. A lot will ride on those numbers and guidance. So, the question remains, is what's next just a bounce or will it be a renewal of the bull market after a serious correction in tech. The bulls do have hope based on history. The Tech sector is -9.3% over the last 21 days, which is a 4th percentile reading over the past 10 years. On Oct 26, I sked the question "Could The Tech Correction Be Over?". In that post I pointed to volatility and futures conditions acting pretty bullish. While my question and belief that the end of the correction was very close, based on last week, I was clearly early. However, similar weaknesses that we've seen in the tech sector (XLK for tracking) was typically followed by strength over the next week. In past instances XLK was up 19 of 20 times for an average gain of 3.7% (chart below). Many were looking at Friday to see if it carried some elements of "capitulation"...or a giving up by investors, which often marks bottoms. While the volume for XLK was over 19 million shares on Friday, the 3 month average for XLK is 7.6 million. So even though that was about 2.5 times that average it really doesn't meet the definition of "giving up". Usually, real capitulation is a string of bad days, not just one, and unfortunately for the bulls, we've not really met that definition. Look for a day with a bad opening (like down over 1%), with markets AND VIX red most of the day, and a reversal with markets closing either slightly down or a little green. That would be a bullish close. Nasdaq futures need to get back above 29,750 and stay there for this bearish breakdown to be fixed. They are at 28,753 right now. For now, this may just be a bounce. It is possible that markets are starting to sniff out a growth and inflation deceleration in Q1, 2027.
2.) EARNINGS - It's a big week for earnings. Not only does Apple report, but so does 21% of the S&P 500, with a lot of that being tech related. This will be an important week for markets with the elections, Apple's earnings and the jobs report all coming.
3.) SEMICONDUCTORS - Semis have been and remain the main focus in markets due to the AI trade. On Friday, Semiconductors (SOX) closed below the 200 Day Moving Average for the first time since June 2025. That ended the 5th-longest streak on record. The red dots in the first chart below show when each of the 4 longer streaks ended. You can see that there was some weakness that followed each of those previous instances. The average 12 month path afterward resulted in a median gain of just 0.4%. You can see that in the 2nd chart below. You can also see that "the average bottom" in SOX was ultimately another -20% lower. The SOX needs to get back above 12,208 and stay there for this bearish condition to be reversed. The SOX closed Friday at 10,689. If SOX fails at the 12,208 area and if Nasdaq futures fail at the 29,750 area...more caution would be appropriate.
