Cracks are showing
Mister Market can stay irrational for years, and collective euphoria can let valuations drift from fundamentals for a while.
But when analysts pull a brand-new paradigm out of their hats to declare that ultra-cyclical stocks have become the new “safe havens”, it gets hard to deny that irrational exuberance is back.
Not every bubble bursts, of course. Some deflate gently. But one thing is certain: over the past few days, doubt has crept into investors’ minds.
After putting semiconductors on a pedestal, the market is finally asking the right question: will today’s hypergrowth still be there in tomorrow’s world?
Down 25% from its June highs, the SOX (the semiconductor index) is suffering from rising rates and a slowing US economy.
Quick to burn its idols, the market could be lining up another bonfire.
My trading plan
The underlying trend on the Dow futures stays bearish, and this week could bring a fresh selling push.
In control of the situation, short sellers managed to take their profits right at the symbolic 51,000-point level before letting the market bounce.
The latest buying move got trapped just short of the monthly R1 resistance. Against this backdrop, the market could go hunting for buyers’ stop-losses below the 50,858-point support over the coming sessions.
Happy trading!
Maxime holds two master’s degrees from the SKEMA Business School and FFBC. As founder and editor-in-chief of NewTrading.fr, he writes daily about financial trading.
Critical condition
Come hell or high water
Running out of steam