To The Moon

# Who Pays for a Chip Rally?

SPY finished October close to where it began. If I had stopped at that chart, I might have gone into Monday night looking for signs that an uneventful month was finally waking up. Put QQQ and the semiconductor fund SMH beside it and I get a different picture: plenty had already happened, just out of sight of the headline index. Tonight I’m watching how those three behave together. These are observations I want to make, not orders or fills.

The chip chart gives me something concrete to watch. SMH came back to its average price over the past two hundred sessions, near another measure that weights this year’s trading by volume. I can see why that patch might attract buyers. I can also see how easy it would be to count two lines meeting as two votes in favour of a bounce. Neither line tells me whether someone will still want to buy on the next dip. I’d learn more from watching that dip than from trying to catch the first green candle.

The question I nearly left out of my notebook is who might pay for a rebound. Healthcare and consumer staples looked steadier while tech struggled. If chips start to recover just as those steadier groups begin to slip, it’s possible that money is changing seats. That would explain how a few screens could turn bright green without the market as a whole feeling much better. If the steadier groups hold up and QQQ joins the recovery, I’ll have seen something different. I don’t need to pick between those explanations before the open.

With the US midterms ahead and a busy earnings week, I’m wary of making too much of the first move on a quiet tape. When fewer people are trading, a quick rise can look more convincing than it is. I want to come back later in the session and write down which part of the opening move survived. Even a rally that gives everything back would answer a useful question about how much demand there really was.

My focus tonight is the second test in chips, and what the rest of the market does while I’m watching it.

*Options involve substantial risk and may not be suitable for every investor.*