Fallen Leaders
Last week was another rough one for the AI trade.
The $S&P 500(.SPX)$ fell -0.5% on the week. The $Invesco QQQ(QQQ)$ dropped -0.8%.
Semis got hit harder. The $Philadelphia Semiconductor Index(SOX)$ fell -3.2%.
On the surface, that doesn’t sound so bad. The indices barely moved.
But underneath the surface, it has been a historic crash in Momentum stocks.
Morgan Stanley’s US TMT Momentum Factor is now -62% from its highs ‼️
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Leaders Breaking Down
It’s a tale of 2 markets right now.
Defensives are holding up and outperforming. Meanwhile, the very stocks that led this bull market for the last few years are in Stage 4 declines.
Just look at where some of the AI leaders sit from their highs. 👇
Stage 4 decline phases all around in AI and Semis.
The legendary William O’Neil warned about this exact moment, when the leaders of the cycle start to top. 👇
“If the original market leaders begin to falter, watch out! When the old dogs begin to bark, the market is on its last feeble leg. Laggards can’t lead the market higher. Among the telltale signs are the poor-quality stocks that start to dominate the most-active list on market “up” days. This is simply a matter of weak leadership trying to command the market. If the best ones can’t lead, the worst certainly aren’t going to do so for very long.”
-William O’Neil
I said something similar in “Late Cycle” on August 16th. 👇
Again, this Bull Cycle was all about AI and Semis.
It was the AI Bull Market (aka the AI CapEx Bubble).
Now, AI stocks are breaking down while defensives lead.
Markets are always moving - and sometimes, the best move is knowing what works for you.
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