OVERVIEW
Massive Hit For The Semiconductors

The semiconductor index lost over $500 billion in market value on Wednesday, which is the worst it's been since 2020. This happened after news came out that the U.S. might put stricter controls on exporting advanced semiconductor tech to China. Things got even worse when Trump said Taiwan should pay the U.S. for its defense, which hit chip stocks hard.

The U.S. has been pretty protective of its semiconductor industry, seeing it as crucial in competing with China. There’s talk that they might use the toughest trade restrictions if companies keep supplying China with advanced tech. This news tanked shares of Dutch chip equipment maker ASML by 13%, even though they had a good earnings report. Nvidia also took a big hit, dropping nearly 7%, which wiped out over $200 billion in its market cap. AMD, Arm, Micron, and Broadcom all fell significantly too.

Interestingly, companies with U.S. chip manufacturing operations like GlobalFoundries and Intel did better. GlobalFoundries jumped almost 7%, and Intel was up slightly. Some analysts think Intel might actually benefit from these geopolitical tensions since they’re building new plants in the U.S. Despite all the chaos, some experts believe the market reaction will be short-lived because the fundamental market drivers haven’t changed much. The U.S. has already been restricting chip exports to China for a while now, and that’s likely to continue no matter who wins the next election.

Biden’s administration has been aggressive in limiting China’s access to cutting-edge chip technology, issuing sweeping restrictions last October. These curbs have significantly dented U.S. chipmakers' sales to China. For instance, Nvidia's revenue from China dropped to about 18% of its total revenue, compared to 66% a year ago. Trump's comments about Taiwan also had a big impact, sending U.S.-listed shares of Taiwan's TSMC down 8%. Taiwan is a key player in the global chip supply chain, and any conflict over the island could have severe economic repercussions.

The Philadelphia Semiconductor Index had its biggest one-day decline since the COVID pandemic sent global markets into a tailspin, dropping 6.8%. Despite this, the index is still up 30% for the year, outperforming the S&P 500’s 17% gain, thanks to the AI boom. The recent sell-off highlights the market's sensitivity to geopolitical tensions and regulatory changes. Treasury yields have been falling as expectations of a Fed rate cut grow, now sitting at around 4.16%. Market participants are closely watching economic data and Fed comments for clues on the timetable for interest rate cuts.

Nasdaq

The QQQ experienced a significant decline of 2.94% yesterday, falling below both its 10 and 20 daily EMAs. This drop was not just a slight dip; it was driven by substantial selling volume, indicating strong bearish sentiment in the market. The breach of these key moving averages suggests a potential shift in the short-term trend, which might lead to further downside if the selling pressure persists.

This downward move in the QQQ, a major tech-focused ETF, reflects broader market concerns, particularly around large-cap technology stocks. The significant selling volume underscores a lack of confidence among investors, who might be reallocating their portfolios away from high-growth tech stocks towards more stable sectors. If the QQQ fails to recover above its moving averages soon, it could signal a more prolonged correction phase, prompting further caution among market participants.

S&P Midcap 400

The MDY finally experienced a red day after an impressive rally of five consecutive green sessions. It fell by 1.46%, closing at $560.60. This decline marks a pause in the recent upward momentum, suggesting that some investors might be taking profits after the strong run.

Despite this pullback, the overall trend for the MDY remains positive, as it is still trading well above its key moving averages. The recent rally has been supported by strong buying volume, indicating sustained interest in mid-cap stocks. However, this red day could be a signal for traders to watch for potential consolidation or further correction. If the MDY can maintain its position above crucial support levels, it could resume its upward trajectory, but a drop below these levels might indicate a more significant reversal.

Russell 2000

The small caps also saw their first red day, ending an impressive streak of five consecutive green sessions. This pullback was marked by significant selling volume, reflecting a shift in investor sentiment after the recent strong performance.

Despite the decline, the small caps are still trending above all of their daily EMAs, suggesting that the overall bullish trend remains intact. The recent selling pressure could be a sign of profit-taking or a short-term correction. As long as the small caps maintain their position above these key moving averages, they are likely to find support and potentially resume their upward movement. However, continued selling could indicate a deeper correction or consolidation phase.

DAILY FOCUS
Watching From Afar

With the market stalling today, we won't be adding any extra exposure. Currently, there are no setups that have caught our eye, so we will refrain from entering any new long positions. This cautious approach allows us to avoid unnecessary risks during uncertain market conditions.

Instead, we'll closely monitor the market's movements throughout the day. By staying patient and observing how the market behaves, we'll be better prepared to act when genuine opportunities arise. This strategy ensures that we maintain a proactive stance, ready to capitalize on favorable setups as they present themselves, while avoiding premature entries that could lead to losses.

WATCHLIST
Nothing To Declare

We're not planning to enter any new long positions today. Currently, we don't see any appealing setups that justify adding exposure. Given the recent market volatility and lack of clear breakout opportunities, it’s prudent to stay on the sidelines and reassess as the market develops.

Additionally, this cautious approach allows us to preserve capital and wait for more favorable conditions. By monitoring potential changes in market sentiment and keeping an eye on emerging patterns, we'll be better positioned to act when more attractive opportunities arise.

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