How much further can semiconductors slide?

Watch Free Trading Webinar From Drawdown to Outsized Gains https://tradermindset.com/mini-webinar Subscribe to our YouTube Channel https://www.youtube.com/@Trader-Mindset-IVT FREE - Download The Inner Voice of Trading Audiobook https://tradermindset.com/free-ivt-audiobook-tm Contact me for Coaching or questions https://tradermindset.com/contact

• 0:05Speaker 00

  Hey everybody, it's Michael Martin. Thank you for being here. So I got a lot of email requests and comments to do a follow-up to last Monday's video, which was, you know, trading or trying to buy a bounce in a downtrending market. You know, that's a scalper trade. I should have been more clear, you know, to try to go something that's counter, you know, trend. So you want to be super tight with your stops, right, and kind of know what your scalp unit is, because that should be different from your regular trading unit, especially since it's a counter-trend move. Again, the semis were weak the entire market. In some cases, they were down, you know,

• 0:46Speaker 00

  10% on the week, and really didn't show any sign of bouncing whatsoever. So let's get into it. If we look at the two big ETFs, right, we have what I call shaking my head, the VanEck semis, and we have the iShares, which is the SOCK, SOCK-AT-UMI, which they surely did this week. So a good indicator that you can use to know, see the trend, is to throw up the 20-day, you know, moving average, right? It's a rolling four weeks. You can kind of see what the market thinks it smooths things out. Obviously, it's, you can't necessarily trade it, but it gives you an idea. Obviously, here, you can see the buyers are very clearly in control,

• 1:27Speaker 00

  a nice 45-degree angle. Market's starting to plateau, and then eventually sell off. So here, you know, we saw nothing but weakness, and, you know, we're putting in lows on Friday. So again, nobody was stepping up to acquire these things on value, despite what you think the bullish thesis is. So this is where you have to have the pilot and navigator mindset, especially if you're an investor, is you can still lose 100% of whatever you put up, even if you think it's pulling back. As I like to say to the trader community, a pullback like this doesn't mean better value. It just means lower market cap, right? Because

• 2:11Speaker 00

  you can't infer, you don't know what's going on inside, you know, the industry. Now, everything's traded back here, you know, to support, right? This is basically a swing low. I look at this as kind of a mess. So if it doesn't hold support here, the next level is way down here. So you could still give about 33% away of your cash, maybe a 40% move down. You know, you got to be careful in these things, because you don't want to get handcuffed to a corpse. You can't fall in love with the sector, despite what the fundamental story is, because the tape and the chart is saying something different.

• 2:51Speaker 00

  So let's look at SOX. It's the same kind of, it looks the same. Big sell-off, week or all week, you know, again, down about 10%. And on the bottom here, what I have is what I call volume moving average. So the histogram shows you what it was for the day. If the histogram on volume was red, it's because the candle was red. And then the lavender line is a 10-day simple moving average of volume. This is valuable, because then you could tell, like, okay, well, who's showing up volume-wise, after the fact, obviously, on these days of the key inflection points. And what you're looking for is, you know, probably 120, even better, like 125%, right?

• 3:35Speaker 00

  And sure enough, when you look at these days here, like Thursday, you had over, you had, you know, 2X, the volume to the downside on average. And then the same thing on Friday, basically, not quite, but might as well be. So you saw accelerated selling into this window of time, right? And if we look here at some of the individual names, you can see during the week, there was, you know, here's 150% to the downside. Now it rallied up, kind of held support there, but still not a bullish reason to get it, maybe scalp a day trade. Again, you're looking at markets that are very, very weak. So if anything, if it does rally, you'd be looking at, you know, maybe buying puts or selling credit

• 4:21Speaker 00

  call spreads above the marketplace. Now, Micron's interesting, because I think about a week ago, they said that they were going to do a stock buyback that was going to be effective, or starting in December. And that was on the 8th. So here's the 8th, right here, is this red day, boom. And so even after the news of them doing billions of dollars of stock buyback, the stock still sold off. So again, 10% pullback doesn't mean it can't do another 10%. If you're an investor, I would wait for the thing to consolidate before I would start adding risk right here, because this thing could go down. If you didn't live through the bull market of 95

• 5:01Speaker 00

  to 99, or actually, March 10th of 2000 was the top of the market, and then saw what happened, go back and look at the QQQ, because that's what you could see coming up for a market like this. If it gets overheated, the pullback can be, be very, very long. It can be steep, it can be painful, and it can have a duration that might be a lot longer than what you're willing to, you know, endure. Now, I'm not a financial advisor, so you have to do your own due diligence and agree to hold me harmless, because I'm not here to give you financial advice, inasmuch as tell you what I've seen from a historical standpoint. If you're 30 years old, and you think you can get the, this instrument here

• 5:42Speaker 00

  on sale, more power to you, because you have all the years before you. But losses on these instruments are not symmetric across all age groups. So if you're 70 years and watching this, you don't have time to get into a protracted drawdown, right, with something like this. So you have to have very, very strict risk management if you're doing it yourself, or have your, your financial advisor better be able to articulate very, very clearly, you know, what it is they're going to do if, for some reason, they think they want to pick this thing up on sale. Whenever I hear people say that, that makes me anxious, because it means that they think that there's some kind of value at lower prices, when there really isn't, right? These things trade on what the expectation is most likely for

• 6:27Speaker 00

  AI, but having lived through the internet boom and bust, if you haven't ever lived through a bust, don't, don't try to do it now, you know, wait. You're better off paying higher prices later, when at least you know, like, over here, right, you're like, well, why do I want to pay higher prices? Well, like, look what happens when you're buying highs here. You know, trends persist. It's like the birds fly south. I don't know when they're going, but I know they're going, right? So if you're in the trend-following space, and you want to steal my language like you always do, go ahead, knock yourself out. This is a tough buy, right? You anchor, you're like, shit, I could have had everything

• 7:10Speaker 00

  I wanted down here. I could have had all these lower prices, and you feel like you missed it. But did you? So at the end of the day, I would be very, very careful to start adding risk, especially if you're having this big sideways. This is indecision. It's kind of like when you're crushing on a certain member, the opposite sex, or the same sex, doesn't matter to me, but they're just not interested. This shows indecision. And then when you start to see consolidation in the lower part of the range, it's typically not bullish. So this isn't the right time to start adding investments, right? If you're using technical analysis to help yourself manage risk, you're better off waiting for

• 7:53Speaker 00

  the thing to wash out, or at least to solidify here, and, you know, give you more evidence that the decrease in price has stalled. Look at Nvidia, everybody's darling. Trend line looks okay, but if you look at this too, it's terrible, right? It's absolutely terrible. So your, your job, to me, is to, is to preserve your cash, right? That's, everyone wants to make money, but the secret to this business is, don't lose. And if you ask a lot of the old timers, you know, especially the guys that I've worked with, the number one job is to play superior defense. Even if you think of yourself as like a monster speculator,

• 8:36Speaker 00

  scalper, you're hell-bent for election, that's all great, but your job is to preserve your capital, and only bet when you think you have an asymmetric payoff, right? So can you buy 10-day breakouts, 5-day breakouts, 20-day breakouts, this and that? Sure, but you have to know what your payoff is. And that's something that you can get through backtesting. You can't buy something because you think it's cheap. You need to know what the numbers are. And when you see things putting in new lows and closing at the low for the week, that means the week, the whole week was down, and nobody stepped in at Friday's close, thinking that this was a value here, because the big institutions have all the

• 9:20Speaker 00

  money, and they're on a 50-year plan. And if they didn't step up, why should you? What makes you think you're smarter, right? Again, AMD, lows for the week. SanDisk, lows, right, towards the end of the week. Intel, you know, low for the week, on high volume. So, you know, Broadcom, same thing, you know, high, lower high, lower high, now lower lows, and this one's really falling off a cliff.

• 9:50Speaker 00

  There's no reason to step in here despite the bullishness for the sector and all the story. You can't get tied up in the rhetoric, right? That's what's happening in some of these political parties. They're getting tied up in rhetoric and symbolism. And this is what the chart looks like for the party. So you have to basically stay out of all of that and keep your wits about you and just realize like, okay, I don't, you're not a CMT, you don't have to be. But you can sure enough see that these levels of support just keep getting taken out. And the lines, moving averages and the highs are lower and lower and lower. So some of you might have a great sense of timing. I don't think we've seen the capitulation yet. I mean, this one, let's take a look.

• 10:35Speaker 00

  This is Broadcom, the low. So basically, yeah, we closed basically at the low. If you look at the low, it was 28.58 and it closed at 75 cents. So whatever that is, 17 cents off the low on a day when it was down 15 bucks. So you can split hairs, but I'll say that it closed at the low of the day and at the low of the week. Right? And big deal. In the aftermarket, it was up not even 1%. So even after all of that, it was only able to claw back 10% of the crushing blow that it had on that Friday. Now, if you want to take a look and see some of these things are, you can put the Bollinger Band on

• 11:20Speaker 00

  and see that, okay, well, we have extended selling pressure. We're trading to, you know, how far we are off the mean. It may mean revert, but that still doesn't mean that it's necessarily a bullish trade. It's more of a mean reversion kind of a scalp. Right? So for that, you would be looking at, you know, like the nine-period EMA. And you'd certainly be on a shorter timeframe rather than, you know, some of these longer-term things, but that's not, you know, I'm not here to teach you to scalp. So be mindful, like here again, you basically have 120% of the volume to the downside.

• 12:01Speaker 00

  And the thing is pinned, you know, to the boundary of the Bollinger Band. So it could mean revert, but you got to understand, just like in these up moves, it can stay this way for a while. So just because it touches, like here it touched, but here we kind of continued to make new lows. So you have to kind of set your stop, your buy stop above. Right? Let's put the Bollinger Band here. So again, is it overextended? You know, probably, but I've seen these things happen where, you know, like here on the uptrend, look, it stayed kind of pinned there for a while. Right? And then it even traded up there, even though it was kind of mean reverting as well.

• 12:46Speaker 00

  So it can, it can, but you know, what my sense is that if there is going to be a mean reversion, you have to have an extraordinary sense of timing. And know when to get in and know when to get out. Know exactly what your risk unit is, know what your entry, what your exit is. And then certainly know what your protective stop is going to be if you try to scalp. I don't think this is a full position, right? Your scalp unit should be smaller than what your normal risk unit is. And then understand that on any type of strength, it might be an invitation for institutions and other investors to offload their inventory and kind of sell it to you.

• 13:29Speaker 00

  So don't think of this as like some kind of opportunity to start acquiring stock for the long-term. That's not what this is. We could be going through a day of reckoning here that could last for quite some time. In other words, here we're looking at whatever this is, SanDisk. And it very well could go to 2,600, it just might go to 800 first. And again, if you're 30 years old and you have the majority of your income-earning years before you, then sure, risk a half a percent of your portfolio. But if you're 50, 60, even worse, 70 years old, you don't really have the time to sit in a dirty diaper because you have fewer, you know, your job is really to pay, you're in a decumulation phase, to be frank.

• 14:14Speaker 00

  So you really shouldn't even be thinking about excessive growth. You should be thinking about growth, but with an eye to playing superior defense. Right? Intel, same thing, you're partners with the government, but that doesn't save you. And, you know, if these lows get taken out, you're really, you know, this thing could get cut in half again, right? This thing could get cut in half. So the goal here is to protect your capital and be careful if you're going to try to scalp. Know what that is ahead of time. Again, your scalp unit should be, I don't know, maybe a 10th to a half of what your normal position size should be. It's a counter-trend move, so you're going against the grain.

• 14:59Speaker 00

  You're trying to take advantage of an overbought or in this case, an oversold situation across the board. It sets up handsomely if you're going to use calls. Because at least then you know what your max loss is if you do calls or call spreads. But again, you should confer with your financial advisor and figure out like, is this something that you want to do? And what's the goal here? Is it to be smarty pants and say like, I scalped it and I made 2 bucks? Like, what's the point really? And is it better to wait for the thing to kind of mean revert? Put in a lower high, even if it trades back up to the moving average, you'll have a high, a lower high, a lower high, and even lower high,

• 15:41Speaker 00

  which is a downtrend, even though it's choppy and messy, it's still in a downtrend. And then think about either selling a credit call spread above the market, buying puts or buying bare put spreads, you know, even below the market. Because this whole thing looks very, very weak. And in order to scalp, you need to have a phenomenal sense of timing. If you want to try to do it and you haven't done it before, for sure. But do it, but do it in a small way. Right? Because it is a counter-trend trade and you're going against the grain. And your job, if you think the way I think, is to preserve your capital. Your job is to play superior defense, not to try to take home run swings,

• 16:25Speaker 00

  thinking that you're buying things on a bargain here. And that, you know, you're going to try to make whatever this is, 52 bucks a share on a grand slam trade. The market is technically weak. The fundamental story seems to be bullish, but the tape is going in a completely different direction. And when that happens, you have to go with what the chart says. The chart's not going to lie to you. You understand? The story and the rhetoric will be there. Most investment advisors, and I'm not a cynical person by nature, but investment advisors can't charge their 50 to 100 basis points, whatever they're charging their clients to manage cash. So you'll see them on TV saying like, oh, well, the average investor should just hold here. This'll pass, there's still, the fundamental story hasn't changed.

• 17:10Speaker 00

  But that's not the point. You know, this, this thing could be down to 400 bucks by the time they come back and say, well, the fundamental story has changed. At which point you're at, you know, one-third of what the highest price has been, you know, way back here. So when someone says, well, we sell when the fundamentals change, just realize that you can give back, the chart will have given back more than half of what the share price was, waiting for them to understand what the fundamentals are. So don't get fooled by that. Only the price is going to tell you the truth. It's going to be a short week. I have a lot, a lot of travel going on, so I'll have another episode. If you're listening to this on the audio-only aspect through, you know, Apple or Spotify,

• 17:55Speaker 00

  you can see the charts that I was referring to on the YouTube channel with the episode of the full names. Thanks for being here. I'll see you on Wednesday.