A week that may have proven pivotal for the recent trend — not only the AI trade, but also the still-relevant MAG7 trade.
For starters, a massive gap down on Tuesday following the first of two circuit breakers for the (ir)rationally exuberant and highly concentrated Kospi.
Then we were served Apple, filled with upcoming price increases due to chip demand-supply imbalances — a piece of news not particularly well received by a suddenly cornered market.
Fortunately, the main course delivered: Micron earnings came in style on Wednesday after the close, relaunching hopes that the recent AI trade euphoria could still have legs. And yet, on Thursday, I personally observed fewer legs overlaying a somewhat tired market — a session where broadly positive economic data bundled with the Micron catalyst could have achieved a far more stellar performance.
What no one really expected was dessert. A rather sour one: a second made-in-Korea circuit breaker, sending the Nasdaq and the S&P to close out the week very close to their 5-day lows.
Not So Magnificent
I've been noticing larger negative swings from the top dogs — the ones responsible for this year's $700B AI capex price tag. This week, a +5% drop in Alphabet caught my attention, which I attribute to key AI talent departures. Apple scored a similar drop in the same session they announced price increases across some of their products.
Stronger Linkages Downstream
From what I used to observe, a MAG7 swinging 3% or more was something kind of rare — but right now I see a market in a crescendo of pairing (and punishing) who is paying the AI bill, the MAG7, with their AI semis suppliers. And because of increased selling pressure in semis, the entire downstream chain is under significantly higher investor scrutiny.
Is The SK hYnix Starting To Fall?
It was fascinating to observe what a single interpretation of a change in chip production allocation — disclosed by SK Hynix, a major Korean semis player — had in terms of worldwide repercussions. In a Korean market arguably led by Samsung and SK Hynix, where the volume of leveraged bets, including leveraged ETFs (yes, my very own asset class), has been growing spectacularly, a mere sneeze from one of the leaders can turn into something resembling ICU material. Two Kospi circuit breakers in five sessions is, in my humble opinion, exactly that.
The Fat Red Candles Strike Again
From a weekly price action standpoint, we now have — for both the Nasdaq and the S&P — two very decently sized red candles, filled pretty much top to bottom, in the last four weeks. This alone makes next week particularly interesting. I see meaningful downside pressure if we break the lows of these candles, especially on the Nasdaq, where the two red candles sit on almost exact lows.
The Week Ahead From The Deck
To be honest, there is economic data on deck — job openings, non-farm payrolls, unemployment rate — although, if I were to bet, the recent shift in sentiment makes price action prone to swing more vividly in either direction, potentially downplaying what this data pack would normally deliver.
The Hormuz card may also be reshuffled into the deck rather easily. And without any visible catalyst like quarterly earnings for the next two weeks, the market sits more exposed to absorbing the unexpected.