## Session overview The semiconductor sell-off continued for a second straight night as AMD, INTC, and QCOM all posted losses exceeding 4%, driven by an unwinding AI trade following disappointing SK Hynix results and light Qualcomm guidance. On the upside

Verdict: Wait for Triggers — Strong Fundamentals, No Live Entries

This basket trade is well-constructed conceptually but is not actionable today — none of the eight monitored names currently meet all four entry conditions simultaneously, and the setup requires patience rather than conviction. The strongest pillar is Adobe's backtested 65.2% return over 60 months with a 46.7% win rate, anchored by an 89.3% gross margin in the 97th percentile and $9.85B in free cash flow ranking in the 99th percentile of IT peers, which supports the software side of the rotation thesis. The single largest risk is that four of ten names remain semiconductor-adjacent (AMD, INTC, QCOM, LRCX) at roughly 30% of risk-parity weight, and Intel's negative 4.2% operating margin and negative $4.95B free cash flow at the zeroth percentile of peers confirm deteriorating fundamentals that the multi-confirmation entry rules cannot fully protect against. No robust parameter setup was established from sensitivity testing, so the default rules stand as-is with no optimized configuration to apply. The trade is worth monitoring closely — Citigroup's ADX of 72.4 and EMA-9 above EMA-21 make it the nearest stealth candidate if it prints a MACD crossover — but entering now would mean front-running the system's own filters. **Conviction Breakdown** - Thesis support: 62 — Rotation from semis into AI software is real and backed by ADBE/ACN fundamentals, but Intel's collapse and QCOM's light guidance undermine the breadth of the move. - Trade readiness: 15 — Zero names currently meet all four entry conditions; MDLZ is closest on RSI (39.2) but has ADX of just 7.3. - Risk quality: 58 — The 2:1 reward-to-risk structure is sound, but the 22.9% max drawdown and fat-tail kurtosis in INTC (14.0) and LRCX (16.4) warrant caution. - Backtest evidence: 68 — The 60-month ADBE backtest with 65.2% return across 15 trades provides solid support for the momentum rules, though only one of ten names was tested. - Fundamentals trend: 65 — ADBE, ACN, and CRM show elite margins and cash generation, but INTC's negative margins and MDLZ's 44.7% EPS decline drag the basket average lower.

Trade now

**Do nothing right now.** Every ticker in this eight-name basket needs all four entry conditions to fire simultaneously — a MACD bullish crossover, the 9-day EMA above the 21-day EMA, an ADX reading above 20, and an RSI above 35 — and none currently clear that bar. The closest is MDLZ at $59.84, where RSI sits at 39.2 (just above the 35 floor) and ADX at 7.3 (well below the 20 trend threshold). But the 9-day EMA ($60.12) is still below the 21-day EMA ($60.19), and MACD is negative, so the trend-confirmation conditions remain entirely absent. The semiconductor names the idea highlights as selling off — AMD, INTC, and QCOM — are all deeply oversold but nowhere near a long entry. AMD's RSI is 29.5 (needs to be above 35), its MACD is at negative 26.0, and the 9-day EMA ($441.4) is roughly $19 below the 21-day EMA ($460.6). INTC and QCOM tell the same story, with RSI readings of 29.4 and 22.0 respectively. On the software side, ADBE is extended at an 86.5 RSI (well into overbought territory that would trigger the exit condition at 75), and ACN and CRM are similarly elevated. Waiting here means monitoring for the specific confluence: a MACD line crossing above its signal line, the short EMA reclaiming the long EMA, ADX above 20 confirming trend strength, and RSI recovering above 35 without yet hitting overbought. When a setup does trigger, risk is defined by a hard stop at a 2.5% loss and a take-profit at 5.1%, giving you an effective reward-to-risk ratio of roughly 2:1. Position sizing uses a fixed-risk method capping each name at 12.5% of portfolio equity. The 60-month backtest on the ADBE pair produced a 65.2% cumulative return across 15 trades with a 46.7% win rate, though the maximum drawdown reached 22.9% — so expect meaningful volatility and extended stretches without a triggered entry.

Software margins and backtested momentum back the rotation

The idea's core thesis is that capital is rotating from semiconductors into AI-monetizing software names, and the fundamentals support at least half of that trade. Adobe sits at a 89.3% gross margin in the 97th percentile of its IT peer group, with an operating margin of 36.6% that ranks in the 98th percentile. Per the CNBC piece on July 29, Adobe's AI monetization story is drawing traders looking for exposure to the theme without the hardware-cycle risk that is currently punishing AMD and Intel. The company generated $9.85B in free cash flow last fiscal year, placing…

Scores

• Conviction score breakdown: 54
• Thesis support: 62
• Trade readiness: 15
• Risk quality: 58
• Backtest evidence: 68
• Fundamentals trend: 65

Watch items

• AMD — RSI (14)
• INTC — RSI (14)
• QCOM — RSI (14)
• MDLZ — ADX (14)
• C — MACD (9,26,9) crossover
• ADBE — RSI (14)
• CRM — RSI (14)
• LRCX — RSI (14)
• ACN — MACD (9,26,9) crossed above MACD (9,26,9)
• ACN — EMA (9) above EMA (21)
• ACN — ADX (14) above 20
• ACN — RSI (14) above 35