The AI Rebound Was Nice, But It Wasn't Enough
No matter how much an area sells off, we'll invariably see a significant rebound at some point. And that oversold bounce is what semiconductors and artificial intelligence stocks experienced last week. The good news is that it finally occurred after a major beatdown. The bad news is that, technically, it wasn't enough to shift the trend.
Below are four industry groups that house many of the AI-related names. They all had good weeks, especially during the first half of the week, but none of them saw a change in their technical outlook. Check these out.
Semiconductors ($DJUSSC)
Telecommunications Equipment ($DJUSCT)
Electronic Equipment ($DJUSAI)
Electrical Components & Equipment ($DJUSEC)
All of the above are in similar, technically weak positions. Sustaining strength through both the 20-day and 50-day moving averages is necessary just to begin to repair the technical damage.
Next week will be interesting for all four industry groups. It's hard to see the Technology sector ETF (XLK) and the major indices strengthening much without the help of these four groups. We could still see further rotation to value-oriented areas, which wouldn't be a horrible thing, but a huge advance isn't likely without money rotating back into these AI-related areas.
Not all AI stocks are equally weak, however. Relative strength among AI stocks will help us differentiate between stocks likely to bounce back quickly vs. those that could drift lower for weeks, maybe even months. Below are two individual stocks that are showing a lot of resiliency in a very difficult environment:
Advanced Micro Devices (AMD)
Arista Networks (ANET)
AMD shows an added bonus of a very strong AD line. ANET's AD line isn't as strong, but price action came much closer to testing the price resistance established in early October. Both stocks are showing excellent relative strength in areas that have been crushed. For me, it doesn't matter whether I'm looking at a strong industry or a weak industry. My goal is still the same: find the best stocks within the group. And AMD and ANET are among the best in their respective industries... at least for now.
Join Tom Live on Monday, November 16th, 4:05pm ET
On Monday, I'll be hosting an event, "The Great AI Shakeout", where I'll be looking to see where opportunities exist while, at the same time, trying to avoid the minefields. This is a great time to step back and evaluate this polarizing area of the market, comparing it to the dot-com bubble. Has the run higher created a top that won't be pierced for years to come? Or is this panic-stricken selloff simply making great companies more affordable. Plan to spend an hour or so with us on Monday as we discuss our thoughts on the subject. CLICK HERE to register for the event and save your seat!
Happy trading!
Tom
