BTIG analyst Jonathan Krinsky warned on Wednesday that semiconductor stocks may be headed for a significant decline, arguing that the recent parabolic advance in technology and AI-related names is poised to unwind in an "equal and opposite" reaction.
Krinsky highlighted a 14-day relative strength index reading of 82 on the Nasdaq 100, a level that has occurred only 10 times in the past 30 years. Each prior instance was followed by the index falling more than 1% the next trading session. In his note, Krinsky observed mixed historical outcomes: "post-GFC instances skewed bearish with meaningful drawdowns, while 1998–2000 episodes were mostly bullish with limited downside (except July '98 which saw -28%)."
BTIG's base case is cautious. The firm estimates that the semiconductor index could decline at least 20% from current levels in order to retest its 50-day moving average. That projection underpins the warning that gains in the sector may not be sustainable without a period of consolidation.
Krinsky also drew attention to what he described as an unprecedented "whiplash" pattern among momentum stocks. He noted that the High-Beta Momentum Long Index rose 5.4% in one session and then dropped more than 5% the following session. According to BTIG, that specific sequence has previously occurred only after major market declines and, crucially, had not appeared off a new high until now. The firm interprets this behavior as signaling "a negative inflection for momentum."
BTIG expressed skepticism that a rotation into lower-momentum names will offset the potential unwind. The firm wrote: "While that is always possible in an unwind, many of these names are breaking lower, but far from oversold territory. In other words, early stage distribution."
Adding to the cautious backdrop, Krinsky noted that 20-day put/call ratios are near five-year lows, which BTIG says suggests investors have largely abandoned downside protection ahead of what could be a volatile stretch.
Context and market signals:
- Extreme RSI on the Nasdaq 100 (14-day reading of 82) with historical precedents often followed by near-term declines.
- Unusual one-day surge and next-day drop in the High-Beta Momentum Long Index (up 5.4% then down more than 5%), a pattern BTIG links to negative momentum inflection.
- Low 20-day put/call ratios indicating limited current demand for downside protection.