Tech bulls got pummeled Wednesday morning as news broke that Warren Buffet liquidated a big stake in a key semiconductor issue, states Jon Markman, editor of Strategic Advantage.
The Nasdaq 100 index skidded to an early 0.6% loss. Then the short covering began. The benchmark NDX went on to close at 12,688, a gain of 0.8%.
Although new that Berkshire Hathaway (BRK), the giant fund-run Buffet sold most of a large position in Taiwan Semiconductor (TSM), the VanEck Vectors Semiconductor ETF (SMH) closed unchanged. That is a bullish price reversal.
More importantly, bears were ambushed Wednesday in heavily shorted smaller stocks. Silvergate Capital (SI), Upstart Holdings (UPST), and The Trade Desk (TTD) posted gains of 29%, 28%, and 33% respectively. It was an extremely bad day to be on the short side of beaten-down tech stocks. And that is the prevailing theme.
Bears are getting the kind of news flow that should help their narrative, yet bulls are relentlessly buying the dips. That persistent, underlying bid is forcing bears to cover short positions.
The benchmark NDX finished just shy of the breakout level at 12,700. A close above that level on Thursday will force bears to concede a rally to 13,721, the August 2022 high. Support is 12,239.
The QQQ Loop: Members bought the ProShares Ultra QQQ (QLD) on February tenth at $43.67. The 2x leveraged index fund closed Wednesday at $46.49, up 6.6% from the entry-level.
- Set up to sell half of the position at $49.30 lmt gtc, and a half at $58.20 lmt gtc.
- Place a stop loss order at $41.10 lmt gtc.
If this trade works, the upside target is +12.7% and +33%. The downside risk is -6.1%.
