Things that make you think "Hmmm..."
From MarketWatch, April 30:
Forget buy the dip. Now retail investors are ‘trading the mania’ in chip stocks, and it’s about to get messy.
The Thursday morning setup is looking a bit messy as oil bounces around and as investors sift through earnings from the U.S. tech giants.
Qualcomm is standing out among the newsmakers of Wednesday’s after-hours crush. Despite a weak outlook, shares are rocketing higher on news the chip manufacturer will enter the lucrative custom silicon market and already has a hyperscaler lined up as a customer.
Qualcomm’s reception fits a recent narrative of resurgent semiconductor stocks. The PHLX Semiconductor Index has surged 35% in April, marking its second-best month on record behind February 2000. That has some technical analysts warning that “parabolic moves” tend not to end well for investors.
More caution comes from our call of the day wherein Goldman Sachs’s trading desk discusses how retail investors have shifted from the old “buy the dip” approach to “trade the mania,” piling into riskier bets on chip stocks in particular.
Investors have embraced chip stocks on the view that as hyperscalers plan to spend billions on data centers, demand for AI chips will stay high.
Tearing a page out of the institutional-investor playbook, the retail crowd has been chasing momentum in that hot market sector, rather than the usual levered ETFs aimed at tracking and amplifying the moves of the S&P 500 or the Nasdaq Composite, a team led by Gail Hafif told clients in a note late Wednesday.
Individual-investor participation in the Direxion Daily Semiconductor Bear 3X ETF,, and Direxion Daily Semiconductor Bull 3X ETF, is now at the 97th and 99th percentiles, respectively, over five years, said Goldman. Those extreme bearish and bullish bets offer three times leverage either way on chip stocks....
....MUCH MORE
Now, as a general rule, the momo mamas aren't wrong to be enamored with momentum.
Of all the critters in the factor zoo (Fama-French 5 factor+momo) the momentum factor is the one most likely to put food on the table and cash in the bank. However! Trend>Friend>Bend>End means you are going to be trading which means you are going to have fees and slippage grinding against you.
Furthermore, using a triple-leveraged vehicle implies you had better be manipulating the market to get the timing of the turns correct. Otherwise just the variance will wipe you out, leaving aside whether you are right or wrong on the directional moves.
