AI bubble springs a leak — memory-chip glut and Mag 7 selloff spell trouble for
Thesis
The chip sector is facing a sudden reversal of fortune after leading the market for the first half of the year. As Bloomberg notes, semiconductor stocks are off to their worst two-day selloff in nearly a month to start the third quarter. This broad weakness is being triggered by a specific panic in memory chips, with Yahoo Finance reporting a sudden supply-glut fear that crushed SanDisk, Seagate, and Micron. When you combine this technical supply glut with the broader market skepticism detailed in the Mag 7 article—where investors are questioning the ROI of massive AI spending—it creates a perfect storm for short-term downside in the very chipmakers that drove the previous quarter's rally.
Strategy approach
Build a rule-based strategy that enters short SMH on D1 when the ETF loses more than 4% over a 3-day window AND the 10-day average crosses below the 50-day average. Exit on a 5% bounce from the entry close, with a 21-day max hold.