Stock Market's Character Changes

Market Character Please click here for an enlarged chart of Direxion Daily Semiconductor Bull 3X ETF (NYSE: SOXL ).

Note the following: Semiconductors are the leading sector, and semiconductor mania is largely instrumental in driving the stock market higher.

SOXL is the momo crowd’s favorite semiconductor ETF.

For this reason, prudent investors should watch SOXL as a tell for the entire stock market.

The chart shows that semiconductors gap opened yesterday on blowout earnings from memory maker Micron Technology Inc (NASDAQ: MU ).

Please see yesterday’s Morning Capsule for more.

The chart shows that semiconductors approached the low band of zone 1 (resistance).

The chart shows that in the early trade this morning, semiconductors have given up all of their Micron gains.

In yesterday’s Morning Capsule, we wrote: Apple Inc (NASDAQ: AAPL ) is announcing significant price hikes due to higher memory prices.

It will be interesting to see if consumers easily absorb the price increases or if it results in reduced demand.

Microsoft Corp (NASDAQ: MSFT ) is also increasing prices on Xbox.

Both Apple and Microsoft are increasing prices due to higher memory prices.

Micron’s gain is Apple’s and Microsoft’s pain.

The stock market started worrying about how many other companies are going to raise prices due to higher memory prices.

This can lead to both demand destruction and higher inflation.

The stock market’s character may have begun to change.

P rudent investors need to pay attention when the market character changes.

However, note that the character change is nascent, and we will be watching to see if it progresses or fades.

If Micron had reported the same earnings a month ago, MU stock would have gone much higher than it did yesterday, and SOXL would have likely decisively broken to a new high.

If Apple and Microsoft had increased prices a month ago, this would have triggered buying on the narrative that higher prices means more revenue for Apple and Microsoft; the stock market would have been oblivious to the potential of demand destruction and inflation.

Overnight, there was aggressive selling in South Korea again.

In the overnight trading, selling in South Korea spilled into the U.S. and the selling in the U.S. is persisting this morning.

A month ago, South Korea and Taiwan were following the U.S. market.

Now, the U.S. market is following the South Korea and Taiwan markets.

We have been sharing with you that more memory and semiconductor capacity is coming online.

The stock market is oblivious at this time.

There is speculation that SK Hynix (HXSCL) and Samsung Electronics Co Ltd (OTC: SSNLF ) will announce hundreds of billions of dollars of investments next week.

All of these new investments are going to increase supply.

There is speculation that OpenAI’s IPO may be delayed.

This is a double edged sword.

On one hand, a delay will reduce the supply of new stock that is coming to the stock market.

On the other hand, a delay may dampen sentiment.

We have been sharing with you in advance that quarter end rebalancing may entail over $100B of equity selling.

This selling is beginning to impact the stock market.

University of Michigan consumer sentiment was released at 10am ET.

Looking ahead, the stock market may get a boost when the month turns as blind money will pour into the stock market on July 1 and July 2.