Semiconductors Down 15% in October: Rotation to Defensives and Small Caps

Rotation Out of Tech Weighs on the Indices

The S&P 500 and the Nasdaq posted fractional declines overall in a week that saw some big daily moves and a momentum shift. Modest rallies on Monday and Wednesday were offset by a Thursday retreat, as continued pressure on technology stocks weighed on the broader market.

A sharp rotation in equity markets last week saw investors pull back from AI-related stocks, driving significant declines in semiconductor and tech-heavy indexes, while defensive sectors such as utilities, consumer staples and healthcare helped support broader market performance.

Semiconductors Slide as Small Caps and Oil Climb

The selloff in AI-related stocks continued last week, with the Philadelphia Semiconductor Index down 4%, bringing its total decline so far in October to 15%. This rout weighed on the Nasdaq, which is down over 3% this month, and hit international equity markets with heavy tech concentrations hard. The Chinese CSI 300 is in bear-market territory, and the Korean Kospi is now down 40% from June.

The week produced widely divergent performances. The IWM small-cap index rose 2.0%, while its large-cap counterpart was down 0.4%.

Oil traded in a wide range, with U.S. crude rising to nearly $104 per barrel on Monday, falling below $98 on Wednesday, and then bouncing back above $103 on Friday afternoon. At that price, oil’s cumulative gain over the past two weeks was around 12%.

Where Support and Resistance Line Up

We now appear to be at, or very close to, an important technical point in time for the major indices. Key levels to watch closely in the next few sessions are S&P 500 (SPX) support near 7,600-10, 7,508-10 and 7,300-13. Resistance can be seen near 7,770 and 7,845, and then a test of 7,980-8,000 may be had.

Nasdaq 100 (NDX) support is at hand near 28,750, then 28,300, then 27,150. Chart resistance is seen near 29,950-75, 30,770 and 31,350-60.

In any case, as we always do at TheTechTrader.com, we will “Trade What We See, Not What We Think.”

HARRY BOXER, THE TECHNICAL TRADER | www.thetechtrader.com