Stocks ended the day mostly flat, with major indices facing some pressure. The S&P and NASDAQ dipped, while the Dow Industrial Average saw a slight rise. The Russell 2000 index also fell, showing a mixed performance across various stock categories. Here’s how the major indices closed: the Dow increased by 0.02% to 44,922.39, the S&P dropped by 0.58% to 6,411.45, and the NASDAQ declined by 1.46% to 21,314.95. Most chip stocks declined, but Intel gained 6.97% after selling $2 billion worth of stock to SoftBank, despite concerns about dilution.

Impact on Chip Stocks

Other chip manufacturers had a tougher day. Broadcom, Nvidia, AMD, Taiwan Semiconductor, ASML, and Micron all saw declines ranging from 0.53% to 5.44%. The NASDAQ closed below its 100-hour moving average, suggesting a short-term negative trend. Technical focus will shift to the 200-hour moving average at 21,123.54 for tomorrow. Sector performance varied, with 7 of the 11 S&P sectors gaining. Real estate rose by 1.8%, consumer staples increased by 1.0%, and utilities climbed 0.83%. However, information technology dropped by 1.88%, telecom services fell by 1.16%, and consumer discretionary declined by 0.38%. Recent selling in growth and tech stocks indicates a change in market leadership. Money is shifting away from names like Nvidia and AMD and moving into safer sectors. This could be a good time to buy put options on the NASDAQ 100 ETF (QQQ) to hedge against or profit from further declines. This shift is backed by recent economic data, with July’s CPI report coming in higher than expected at 3.4%. This raises concerns about the Fed’s strategy, making safer investments in utilities and consumer staples more appealing. We should consider call options on ETFs like XLU and XLP to follow this shift.

NASDAQ’s Technical Warning

The NASDAQ breaking below its 100-hour moving average is a significant warning sign. If it cannot maintain the 200-hour moving average around 21,123, we could see a sharp drop. An increase in implied volatility could make buying VIX calls a profitable move in the coming weeks. We can also use a pairs trade to focus on this rotation. This means buying calls on a defensive sector ETF while simultaneously buying puts on a tech-focused ETF, profiting from the performance gap between value and growth, regardless of the overall market trend. This pattern of weakening market breadth is familiar, echoing what we saw in early 2022. Back then, a similar shift out of tech preceded a broader market downturn. History indicates that we should take these early warnings seriously and adjust our portfolios accordingly. Create your live VT Markets account and start trading now.

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