BTIG says recent non-tech winners are vulnerable
BTIG's chief market technician Jonathan Krinsky warns that a rebound for momentum stocks may not last.
Stocks are pointing to a rebound on Thursday, after a sharp selloff inspired by fears that Federal Reserve Chair Kevin Warsh won't be proactive enough on inflation.
Our call of the day comes from BTIG's chief market technician Jonathan Krinsky, who said "some reprieve is in order" after the "largest/fastest momentum crash in modern history." But he cautioned about buying the dip.
By momentum, Krinsky is referring to highflying stocks investors have been chasing this year, such as chip names, favored for their crucial role in supplying the artificial-intelligence build-out. The PHLX Semiconductor Index SOX slid 5.3% on Wednesday, its worst session since early July, though it is still up 45% this year, versus a 5% gain for the Nasdaq Composite Index COMP.
A selloff for the 30-year Treasury bond BX:TMUBMUSD30Y helped hammer technology stocks on Wednesday. The Nasdaq logged its sixth-straight loss, the worst such run since April 2024, and came close to a 10% drop from a June 2 record close - one definition of a correction.
Breaking down Wednesday's carnage, Krinsky said the MS Sector-Neutral Momentum Index has seen its worst four-day decline on record at 17.4%. That surpassed the drops after the dot-com bust, 2022 and post-COVID.
Meanwhile, he said the Goldman Sachs High Beta Momentum Pair, a high-volatility, high-beta momentum-stock index that tracks a strategy of buying the winners and shorting the losers, is 23% below its 200-day moving average, after being 40% above that in mid-June. High-beta refers to stocks with higher volatility than the market as a whole, therefore riskier, but which also offer the potential for higher returns.
From a tactical standpoint, Krinsky said they are looking for tech to rebound, but warn that could be something of a head-fake based on history. In 2000, post dot-com peak, the PHLX Semiconductor Index SOX sank 35% in a month, it surged 37% before falling again, he explained.
"We don't know if we see that sort of rally, but a 20% rally would bring the SOX back to 50 DMA [daily moving average] where we think it likely would fail again, as we still think it eventually tests its 200 DMA," he said. Moving averages are used by chartists to help spot technical trends.
Krinsky warned that if they are wrong about this potential bounce for momentum plays, we could see a "correlation-one selloff like we saw in August 2024," in which case the Invesco S&P 500 Equal Weight exchange-traded fund RSP goes lower. He suggested "fade equal-weight" - that ETF is up 12% so far this year, while the State Street SPDR S&P 500 ETF Trust SPY is up close to 7%.
"One of the questions we have been getting is can equal-weight $(RSP)$ go down if momentum bounces? Given that we just saw RSP at an all-time high while QQQ QQQ suffered an 11% drawdown and SOXX SOXX a 29% drawdown, we would say yes. A momentum rally likely at the expense of recent winners," he said.
Krinsky also warned that 30-year Treasury yields BX:TMUBMUSD30Y "continue to threaten a multiyear breakout. Any upward pressure from here is likely a headwind for recent winners," he said.
Rising yields can be a double whammy for tech stocks, which sell themselves on future profitability, as higher yields can dent those prospects. Higher yields also point to greater borrowing costs, with investors already questioning whether the high spending of big tech to build out AI ambitions will pay off.
Krinsky warned clients in a separate note on Tuesday that "this is not the spot to be pressing sales in semis," ahead of a Fed decision and heading into the heart of earnings season.
He added that, while BTIG has been constructive on healthcare stocks XLV, REITs VNQ and insurance KIE, as part of that equal-weight bounce, much of that strength had been due to unwinding positions on the other side of semiconductors and AI stocks. Therein lies the risk. "It's been a nice run for equal-weight, but likely needs some consolidation," he said.
The markets
U.S. stock futures (ES00) (YM00) (NQ00) are rising, with tech out in front. The 30-year Treasury yield BX:TMUBMUSD30Y is trading at 5.239% after touching its highest since 2007 at 5.246% on Wednesday.
Nasdaq composite Last 5d 1m YTD 1y S&P 500 7316.15 -2.44% -2.23% 6.88% 14.98% Nasdaq Composite 24,442.94 -4.86% -6.13% 5.17% 15.68% 10-year Treasury 4.705 0.50 21.50 53.30 33.00 Gold 4069.7 0.43% -1.59% -6.06% 21.76% Oil 84 -9.05% 22.70% 46.32% 21.11% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
The Fed's preferred personal consumption expenditure price index fell 0.1% in June, the first dip since the pandemic. Weekly jobless claims rose 9,000 to 197,000, second quarter gross domestic product rose 1.5%; and personal income rose 0.2% and spending rose 0.3%.
Meta's $(META)$ revenue guidance came in softer-than-expected as it increased its 2026 expense outlook. Shares are down sharply in premarket.
Microsoft's $(MSFT)$ cloud growth and forecast topped expectations. Shares were rising.
Qualcomm's stock $(QCOM)$ was falling after the chip maker missed profit expectations and gave disappointing guidance, citing high memory prices.
Samsung's stock (KR:005930) was falling despite record-setting profits.
Arm Holdings $(ARM)$ reported higher profit and revenue growth, but the chip designer's shares fell anyway.
Apple $(AAPL)$ and Amazon (AMZN) will report after the close, along with Coinbase (COIN).
The U.S. carried out a "heavy wave" of strikes against Iranian military targets late Wednesday, but oil prices (CL.1) (BRN00) were falling.
The rise of million-dollar companies with just one employee
The chart
The chart from Callum Thomas, head of research at Topdowncharts, shows the ratio of trading in leveraged long versus short U.S.-equity ETFs. "It surges when people are disproportionately betting on upside, and collapses, then greed gives way to fear and bearishness," he said in a note. Spikes in that ratio have flagged short-term stock peaks in the last two decades, as plunges flagged several market troughs. "The key point is it's surged to levels last seen during the 2021 stimulus frenzy as a scramble of desperation to try to get rich 'like everyone else' kicked-off in the wake of the Q1 correction. It adds to a growing list of topping signals, so I think at this point the burden of proof is with the bulls and caution is warranted," Thomas said.
Top tickers
These were the top-searched tickers on MarketWatch as of 6 a.m.:
Ticker Security name MSFT Microsoft NVDA Nvidia MU Micron TSLA Tesla META Meta SPCX SpaceX TSM Taiwan Semiconductor Manufacturing AMD Advanced Micro Devices AMZN Amazon SNDK Sandisk
-Barbara Kollmeyer
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