The AI trade may be at a turning point. Where it may go, and how to play it
(See the video above for Todd’s complete chart breakdown.) We’re at a genuinely interesting juncture in the market. Since early summer, we’ve tracked a steady rotation out of technology and into value, a theme I’ve covered often in this weekly column. This week we leaned into it and trimmed 13.5% from the artificial intelligence-related portion of our growth portfolio, added to energy and healthcare as discussed last week in this column, and placed a modest 5% hedge against the Nasdaq via the PSQ ETF . Then came Tuesday’s blowout SpaceX earnings, and growth roared back. So the question we have to answer as active portfolio managers is: Was that a turning point, or a bounce into resistance? In the video, I walk through the two charts I’m using to answer it. The first is a ratio chart, which is one of the best tools for gauging relative strength. A price chart tells you whether something went up. A ratio chart tells you whether it went up more than the alternative you could have owned. Divide one asset by another, like semis by the S & P 500 , and the line rises only when the first is outperforming. Portfolios are built on percentage returns, not dollar moves, so the ratio cuts straight to the question that matters: Where should the next dollar go? This chart tracks the VanEck Semiconductor ETF (SMH) against both the S & P 500 (SPY) and the Nasdaq-100 (QQQ) over the past year. Both ratios peaked around June 1, and semis have lagged both benchmarks since, AI build-out notwithstanding. Now, both ratios are sitting right on support. A break below those highlighted zones would confirm the rotation out of semis is continuing, a risk-off signal that favors value-oriented sectors. The second chart is the more traditional daily view of the Nasdaq-100. Here, a double top has formed between the June and September highs, followed by a break of the uptrend line (dashed red) and the 21- and 50-day moving averages. The SpaceX rally is now pushing the Nasdaq-100 back up from below to retest that broken support, which may now act as resistance near 30,000. Given our positioning, I believe that resistance holds. If I’m wrong, we’ll lift the hedge and redeploy the 13.5% we trimmed, likely at higher prices. That’s the honest trade-off of active management at a tricky juncture like this, and we’ll keep feeling our way through it. Todd Gordon is the founder of Inside Edge Capital, LLC. DISCLOSURES: Gordon owns SPCX and PSQpersonally and for clients of Inside Edge Capital, LLC. Charts shown are Koyfin. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
