Sliding Down the Side

One of the best quotes about markets that I have seen (you will pardon me for forgetting who said it, and where I read it) was something to the effect of: Bear market moves typically do not happen in a linear way, the way we often imagine they do. Instead, they are often akin to tossing a ball down the side of a mountain, with numerous, random, abrupt bounces, ultimately resolving lower even when it seems like the ball catches some big bounces and appears to head back up the mountain a bit. 

That quote seems particularly applicable to today's action, with the semiconductors up 6-8% as a sector on the session and individual names like LRCX up 17-18% as I write this. Now, first and foremost, many will dispute whether the chips are in a bear market altogether. 

As you can see on the SOX Index hourly chart, below, we know for a fact the semis put in some type of top back on June 22nd. And now we are headed into August with the sector still in a clear pattern of lower highs and lower lows. 

The chart also shows the bouncing, or sliding, down the side of a mountain theory, with various sharp bounces along the way that I have highlighted. In my view bulls, especially retail traders, remain widely bullish on AI and the sector, with the lower highs and lower lows since June 22nd not only failing to deter them but often galvanizing them for another "easy" dip-buy to make a run to new highs soon enough. 

The counter view, or my view, is that this sets up a scenario where if the bounces keep failing, then retail eventually capitulates and leads to a total wipeout in the sector, with the ball essentially falling off a cliff instead of continuing to bounce along the side of the mountain. 

Tonight we have AAPL and AMZN earnings, two of the biggest MAG7 plays. Also note Treasuries failing to enjoy a relief rally, which makes me question the notion that the market reconsidered its initial rebuke of Warsh's various word salads at the FOMC presser yesterday.