August-September correction risk looms for equities
The guest argued that the broad market is vulnerable to a 5% to 10% correction during August and September, driven by potential margin calls in the semiconductor sector and seasonal weakness.
The argument
The guest noted that momentum is weakening and a technical sell signal is close to triggering. He argued that if the current meltdown in semiconductors continues, it could trigger retail margin calls and liquidate leveraged positions, putting downward pressure on the broader market. However, he expects this correction to set up a buying opportunity ahead of a seasonally stronger November and December.
The thesis, stress-tested
✓ What validates it
- ✓A breakdown below the 50-day moving average on the S&P 500
- ✓Triggering of a momentum-based technical sell signal
▸ Risks discussed
- ▸Rotational flows into defensive sectors could cushion the index
- ▸Stronger-than-expected economic growth or earnings could invalidate the correction thesis
Hear it yourself
"If we're gonna see this kind of meltdown and semiconductors continue and we start getting margin calls in that sector, that's gonna put more pressure on the broad market."
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