Here’s What Happens When Semiconductors Jump the Shark

Irrational exuberance overtakes tech, but what happens next? [Morning Reckoning] February 13, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Here’s What Happens When Semiconductors Jump the Shark Baltimore, Maryland February 13, 2024 [Greg Guenthner] GREG GUENTHNER Dear Reader, If you’re anything like me, you came into February feeling seasonally bearish. Let’s set the scene… Stocks were starting to stall out at the start of the month following a powerful melt-up rally that the mega-caps and semiconductor stocks were beginning to monopolize. The market was exiting its strongest six-month period. Investors were getting skittish about the potential (or lack thereof) of a March rate cut. And earnings season was looming large, threatening to derail any stock that failed to impress picky shareholders with strong guidance. Of course, the market doesn’t care about our feelings. Instead of stumbling, the mega-cap rally broadened out. Smaller stocks started to gain traction. The tech-growth names that failed to keep up in January abruptly reversed to the upside. Earnings came in hot, pushing stocks higher into the stratosphere. The bulls were charging back into town and nothing could stop the stampede. Perhaps the most maddening rally of them all comes courtesy of the semiconductors. NVIDIA Corp’s picture-perfect breakout above $500 in early January was a sight to behold, rewarding traders with a double-digit move the week the stock finally cleared resistance. But the stock kept rallying. And rallying. It hasn’t quit yet. Heck, it hasn’t even paused. The rally that began on an otherwise ordinary Monday in January immediately started spinning into a parabolic nightmare for the bears. The stock has now gained more than 50% year-to-date, just shy of Valentine’s Day. NVDA isn’t the only stock to jump the shark, either. Other semiconductor stocks have gleefully followed in its wake, posting their own parabolic runs that have helped launch the VanEck Semiconductor ETF (SMH) to a year-to-date gain of 20%. We’re also seeing some of this froth trickle down to the tech-growth names. For example, recent IPO Arm Holdings (ARM) earned the distinction of “Most Overbought Stock on the Market” Monday morning after rallying another 35% following last week’s earnings beat (the stock shot up a modest 62% following its midweek earnings date). We’re even seeing bullish bets pile up across some of those slippery software and other tech-growth names ahead of a glut of earnings announcements this week. Just as the market looked like it was ready to slip, another wave of eager buyers has stepped in to bet that the good times will keep rolling… [Secret Gold Back currency RUINING Biden’s plans for a digital dollar?]( [Click here to learn more]( What you see here is a completely new form of money… As we speak, it's being used as an alternative currency across the U.S. minting in places like Utah, New Hampshire and Nevada… And since it’s made out of a thinly printed sheet of REAL gold... It may be the single best way to protect your wealth from Biden’s plan for a government controlled digital dollar. That’s why, we'd like to offer to send one to you today. But since there are a limited number, I need you to respond to [this message]( by Wednesday at midnight. [Watch this short 2 minute message that explains everything here.]( [LEARN MORE]( Stock Market Madness, Round 2 All this action is starting to remind me of January 2021 – when the massive TSLA gamma squeeze and subsequent meme-stock madness shocked the market. You might recall how the pandemic bubble unofficially topped out in February 2021 as these parabolic trades began to unwind… For the record, It took the rest of the market another ten months to catch lower. But the speculative runners mostly peaked in early 2021 following a massive surge of retail traders piling into a few concentrated trades. To be fair, the pandemic bubble was already getting long in the tooth as Covid lockdowns led to a new short-term trading boom. I don’t think we’re that far along in the cycle this time around – especially considering how painful the 2022 bear market was for just about every asset class. Maybe the market isn’t headed for a major correction just yet. But certain stocks are painfully overextended – and the averages could use a break. A pullback of 5%, 7%, or even 10% would be healthy for stocks in the long-run, even if it did freak out more than a few investors. Fortunately, we don’t have to sit on our hands as stocks fly a little too close to the sun this month. Just be sure to understand what’s unfolding in the market right now – and remember a few key rules: - The market will eventually punish the chasers The market has been rewarding bad and/or risky behavior lately, handing out profits to speculators who’ve chased these out-of-control breakouts above and beyond and reasonable entry level. Yes, entries still matter in trading! Unfortunately, some folks are going to learn this lesson the hard way when they become stuck in some of these stocks (Ahem, semiconductors) on a reversal day. We might already be seeing the start of a reversal emerging in the semis as I type. Imagine that! If you’re feeling the FOMO, just remember there will always be another opportunity. I didn’t buy NVDA in the $500s. But I know the stock will eventually consolidate. Even if that consolidation area occurs at higher prices, I can still buy at a safer point in the trend where I can set a mental stop at a reasonable level. That way, I know when I’m wrong without having to worry about my ill-timed investment dragging down my entire portfolio. To recap: Recognize that these stocks are overbought and frothy. Keep close tabs on the action. Then, make a plan where you would buy. More importantly, answer this question: Where would I need to sell if the stock reverses? - Parabolic rallies do not correct sideways I don’t care if we’re talking about Bitcoin or biotech stocks – a massive, parabolic rally will rarely level off and drift sideways. Major moves higher over a compressed time frame require backfilling. Or, in some cases, they give back most of the previous move and completely reset before moving higher again. We witnessed the perfect example of this phenomenon when the crypto mining stocks topped out in late December. Just three weeks after recording fresh highs, many of these names had retreated at least 50%. Anyone who bought near the top without a plan was left holding substantial short-term losses. These stocks have snapped back to attention this week following Bitcoin’s resurgence and push toward $50K. That’s great news to anyone who held through the January turmoil. But I do have a final word of caution if you think you can simply “HODL” your way out of trouble… Many of these parabolic rallies can take months to reset. Some even take years. You don’t have to dig too far back to find examples, either. Just check out some of those tech-growth rallies from 2021. Many of these stocks remain well off those highs almost three years later.You can’t always count on time to bail you out. Keep watch on the semiconductor names and other high-fliers this week. And don’t get too trigger happy attempting to play any type of pause in these rallies. These stocks will set back up again and offer much better entries for patient traders. I’ll take you through the charts[this morning at 11 a.m. Eastern on Top Trades Live!]( Be sure to stop by to see some of my favorite actionable trade setups for the week. [Click here to join me!]( Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [Before You Invest in AI, Watch THIS First]( Artificial intelligence is the greatest wealth-building opportunity for regular Americans in the past 150 years. Some estimate [it will be $15.7 trillion boom](. But most folks won’t make a penny. Why? [The AI Paradox](. Before you spend one nickel on AI… [I urge you to watch this first](. I’ll show you everything you need to know. [LEARN MORE]( In Case You Missed It… Tucker is No Duranty Sean Ring, Editor [Sean Ring] SEAN RING Dear Reader, The Left loves to project. Just look at it now. “Tucker Carlson is a traitor.” “Tucker Carlson hates America.” The nonsense is knee-deep. [Chess in Russia] But this isn’t the first time a journalist has traveled to Russia to report. In fact, nearly a century ago, a son-of-a-bitch named Walter Duranty became - who could’ve guessed it? - The New York Times Moscow bureau chief. Duranty, God rot him, will be unfamiliar to many today. But he was a man we now know stumped for Uncle Joe Stalin and helped hide a genuine government-induced catastrophe: the Holomodor. To suggest that Tucker Carlson is doing the same for Putin demonstrates not just a lack of historical knowledge but an emotional leap that insults Ukrainians themselves. Who was Duranty? Let me tell you about this bastard. A Stain on the Fabric of Journalism In the annals of journalism, few names elicit as much controversy and disdain as Walter Duranty. Once a revered correspondent for The New York Times during the early 20th century, Duranty has become synonymous with journalistic malpractice, bias, and the perils of sacrificing truth to political agendas. The Rise of Duranty Walter Duranty carved out a niche for himself as The New York Times’ Moscow bureau chief in the 1920s and 1930s, a period rife with seismic shifts on the global stage. The Bolshevik Revolution had ushered in the Soviet era, promising a utopian socialist state but delivering a regime underpinned by terror, repression, and mass murder. Duranty, with his direct line to the Soviet elite, including Stalin himself, became the West's key informant on Soviet affairs. His reporting from the Soviet Union won him the Pulitzer Prize in 1932, ostensibly for his "dispassionate interpretive reporting of the news from Russia." However, beneath the veneer of dispassionate reporting, a more sinister reality lurked. Duranty's writings were far from unbiased accounts; instead, they were egregious examples of journalistic malfeasance that would eventually lead to a widespread reassessment of his legacy. Hiding the Holodomor Duranty's fall from grace centers on his coverage of the Ukrainian famine of 1932-1933, known as the Holodomor. This government-made catastrophe, engineered by Stalin's policies of forced collectivization, led to the deaths of millions of Ukrainians. Yet, Duranty's dispatches painted a markedly different picture of progress and optimism in the face of minor difficulties. "Reports of a famine in Russia are mostly exaggeration," Duranty famously declared, even as evidence to the contrary mounted. His denial and minimization of the Holodomor served Soviet propaganda well, helping to obscure one of the 20th century's greatest atrocities from the international community's eyes. His reports are considered a key reason why the United States recognized the government of the Soviet Union. Why Duranty's Influence Was So Detrimental Duranty's reporting did not just mislead readers; it actively contributed to the Soviet regime's ability to carry out its repressive policies with impunity. His stature and the platform The New York Times afforded him lent credibility to Stalin's government and directly influenced Western perception and policy towards the Soviet Union. The dangers of Duranty's brand of journalism are manifold. First, it underscores the importance of integrity and truth in reporting. Duranty sacrificed these principles out of personal ambition, ideological sympathy, or both. Second, his work highlights the risks of access journalism, where close relationships with sources come at the expense of objectivity and critical scrutiny. Last, Duranty's legacy is a cautionary tale about the power of media to shape narratives and, by extension, history itself. Reflections for Today's Journalists In an era where accusations of "fake news" and media bias are rampant, Duranty's story offers sobering lessons. The responsibility of journalists to report truthfully and without undue influence is paramount. The consequences of failing in this duty can be historically significant, shaping perceptions and policies with potentially dire implications. Moreover, Duranty's legacy reminds us of the need for critical media consumption. Readers must be discerning, questioning the sources of their information and the potential biases that may color reporting. In an age of information overload, this critical stance is more important than ever. Walter Duranty's influence on journalism is a stark warning about the costs of forsaking journalistic integrity. His reporting on the Soviet Union, especially the Holodomor, exemplifies the dangers of bias, misinformation, and manipulating the press by powerful interests. Wrap Up An American journalist, Tucker Carlson, flew to Moscow to interview Russian President Vladimir Putin. Why? Because Putin won’t talk to anyone in the Anglosphere media. Why? Because he won’t get a fair shake. If Carlson lobs grapefruits down Broadway and Putin hits them out of the park, then, okay, be mad. But if Carlson can create a meaningful dialogue and we can learn something from it, then that would be fantastic. Duranty would blanch at this. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your The Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@dailyreckoning.com. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We allow the editors of our publications to recommend securities that they own themselves. However, our policy prohibits editors from exiting a personal trade while the recommendation to subscribers is open. In no circumstance may an editor sell a security before subscribers have a fair opportunity to exit. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. All other employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. Please read our [Privacy Statement.]( If you are having trouble receiving your The Daily Reckoning subscription, you can ensure its arrival in your mailbox by [whitelisting The Daily Reckoning.](