Hey, Ross here:
Traders poured billions into a bet on a semiconductor rebound last week.
Chip stocks kept falling anyway.
After that selloff, I understand the temptation to pick up former leaders at a discount. But look at what the buying has accomplished so far.
Chart of the Day
The top panel shows SOXL, a fund designed to deliver three times the semiconductor sector’s daily move.
The bottom panel shows money moving into and out of that fund.
Look at the spike on the far right: roughly $4.15 billion flowed in over the week through Thursday. The chart marks it as the largest inflow on record.
Yet the price above it was still falling.
That is a lot of money betting on a rebound. It hasn’t been enough to turn the sector around.
Now look at the stocks underneath that trade.
This chart tracks the percentage of semiconductor stocks in SOXX trading above their 10-day moving averages.
At the right edge, the blue line is down to just 3.33% as of last Thursday. And since semiconductors had fallen further on Friday – it most likely ended the week even lower.
You can see that the selling has spread through almost the entire group.
Now put the two charts together.
Investors were pouring money into a leveraged bet on chips – while the underlying stocks were still losing ground.
And this leads us to an insight that a lot of traders need to know.
Insight of the Day
Dip buying won’t necessarily put buyers back in control.
Considering the strength of the secular bull market we’ve been in for the past few years – and the near decade before that..
“Buy the dip” has become almost a mantra among a certain type of investor.
And while this kind of “almost automatic” dip-buying behavior is mostly seen when it comes to the major indexes – particularly the S&P 500…
As you just saw above, we can see it in more concentrated sectors too.
But dip buying won’t necessarily put buyers back in control.
Every share sold has a buyer.
If those buyers keep getting filled at lower prices, sellers are still driving the market down.
That’s why you can see record buying while the price action stays ugly.
For dip buying to actually cause any sort of market rebound…
It has to be the right kind of buyers.
Not the small-fry retail traders gambling on high-leverage high-beta ETFs.
I’m talking about the “smart money” – the institutional buyers with billions of dollars to throw around.
In the vast majority of cases…
They’re the only ones with enough firepower to make dip buying effective.
And if they have the capital to move entire sectors…
Think about what the effect their buying can have on individual stocks.
Tomorrow, I’ll show you how I’m looking for targeted institutional buying in individual stocks…
So even when the broader market is falling…
You can still target the stocks the institutions are sheltering in…
And use their money for your gain.
Watch your inbox tomorrow morning.
In the meantime, if you missed this morning’s YouTube LIVE session, where I broke down the market in real time…
You can catch the replay here.
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Embrace the surge,
Ross Givens
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