A Needy Market

Read Time ~ 3 Minutes

Author

Larry Thompson
December 14, 2024

All Eyes on Semiconductors

I don’t make the rules.

The Market does.

And right now, the market demands we pay attention to semiconductors.

They’re a monster and the symbolic leader of this Bull Market.

If semiconductors were their own sector within the S&P 500, they’d rank as the 4th largest, bigger than Energy, Utilities, Real Estate, and Materials COMBINED.

The Rotation That Kept the Bull Alive

From July to September, semiconductors endured a sharp 30% drawdown, which rightfully raised concerns.

Yet, true to form, the Bull Market found a solution through rotation into Software, keeping the momentum alive.

If you’ve ever wanted a chart to illustrate that “Rotation is the lifeblood of a Bull Market”, this is it.

A Critical Crossroads

Now, we find ourselves at a critical crossroads.

December is off to a rough start, with the S&P 500 logging 10 consecutive days of more decliners than advancers—a pattern more common in Bear Markets.

Software, which took the baton from semiconductors, looks like it needs a breather here.

The MAG7 rally, which we were thankfully a part of, can only hold the market up for so long.

What was once a want is now becoming a need.

We need semiconductors.

The Chart : Ready For A Resolution

Looking at the chart, a tight consolidation is forming.

I don’t get caught up in naming chart patterns. Doing so often creates false precision and unwarranted confidence

This is simply consolidation and a contraction in volatility, which typically lead to explosive resolutions.

I lean toward the expansion breaking in the direction of the underlying trend, but we need to be prepared for either outcome.

Where this resolution takes us will likely dictate the next move for the market:

  • If we break out to the upside: It’s go time. The Bull Market has done what it’s supposed to do, solving our worries, and we can continue to think opportunistically.

  • If not: It’s time to shift focus toward risk management in our positioning.

Cheers,

Larry Thompson, CMT CPA

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