All Eyes On SOX

Technology is approaching another inflection point. Semiconductor technicals continue to deteriorate and AI funding dynamics are becoming increasingly questioned, yet positioning has largely reset and seasonality is turning more supportive. Whether this proves to be the next buying opportunity or the start of a deeper correction may depend on whether SOX can hold its most important support level.

SOX is testing major short-term support around 11,200, the same level that held during the July 17th sell-off. Since that bounce, however, the technical picture has deteriorated, with the 21-day moving average crossing below the 50-day moving average, a short term bearish development. A decisive close below 11,200 would leave little meaningful support until the 200-day moving average, which currently coincides with the longer-term uptrend. Latest SOX note here.

Tech positioning has reset just as retail seasonality turns more supportive. Institutional positioning has normalised and retail participation has cooled materially from earlier this summer. If seasonal retail inflows begin to recover over the coming weeks, the backdrop for technology could become increasingly supportive. Importantly, the crowded Long Semis / Short Mag 7 trade has now been largely washed out, leaving positioning much cleaner. More here.

Tech volatility remains well bid. While the VXN/VIX ratio has retreated from recent extremes, it continues to signal elevated stress in technology stocks.

Hyperscalers have dramatically underperformed the broader NDX. The relative move has reached an extreme rarely seen before. The move has become so extreme that the contrarian in us is starting to pay attention.

The short-term divergence between Mag 7 capex and the SOX Index has become unusually wide.

SOX is testing major technical support just as investors are beginning to question the quality of AI demand. Nvidia's latest financing discussions and strategic investments have reignited concerns that parts of the AI build-out are becoming increasingly circular, with capital funding the very customers buying AI hardware. If confidence in the AI spending cycle continues to weaken, today's technical support may prove difficult to hold (more here).