Rotation Reverses Ahead of Big Bank Earnings
We wrapped up the week with an odd brew of action.
The business media spent the day discussing the future of semiconductors and the SK Hynix IPO, breadth was close to dead even and algorithmic selling hit the biotechnology sector hard. Meta Platforms ($META) and Nvidia ($NVDA) boosted the Magnificent Seven back over its 50-day simple moving average but the Russell 2000 was negative.
The SK Hynix IPO performed fairly well. The stock trades under the ticker SKHYV until it converts to SKHY next week. It opened at $170, up 14% from its $149 pricing, but after an intraday spike, it faded to close around $168.50. There was a lot of flipping and the close was weak.
The other recent giant IPO, SpaceX ($SPCX), finished at a new post-IPO low today which suggests that SKHYV may also have some difficulty building sustained upside momentum. These big IPOs receive a lot of attention but buyers aren’t willing to chase entries after the initial pricing. There was a lot of talk today about how memory shortages will persist for years but the price action of the chip sector ($SMH) suggests that investors aren’t fully embracing that thesis.
Much of the action on Friday was just reversals of some of the strongest recent rotation. Biotechnology has been a recent winner while the Magnificent Seven has been a laggard but that reversed sharply. I believe it was just a reflexive response to technical conditions and I did not cut my biotech exposure. I plan to be a buyer on further weakness but we will see what happens when we move into earnings season.
Setup Into Next Week
Next week we start with the banks and that will provide some clues as to the level of expectations and it should also bring the inflation discussion back to the forefront. Late in the day on Friday there was news that the U.S. is moving ships to once again blockade the Strait of Hormuz, but there was little reaction in oil or the market.
I took some hits on Friday due to biotechnology but I have a heavy cash cushion and I hope to have some opportunities to add to my favorites next week.
Have a great weekend. I’ll see you on Monday.
At the time of publication, DePorre had no positions in any securities mentioned.
