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ASML Holding N.V. (ASML) - free report >>
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) - free report >>
Invesco QQQ (QQQ) - free report >>
Image: Bigstock
Election Looms: Volatility Ahead?
U.S. stocks were mixed Thursday with tech stocks regaining the throne as the strongest market area. Earlier in the week, semiconductor stocks declined due to a surprise earnings release by Dutch semiconductor giant ASML Holding ((ASML - Free Report) ). ASML’s earnings were released on the company’s website due to an apparent technical error. The weakness in ASML reverberated throughout the semiconductor industry, and the Semiconductor ETF ((SMH - Free Report) ) dove more than 5% on the news.
However, as I mentioned in my recent commentary, though ASML is an integral player in the AI realm, the best proxy for investors to consider is Nvidia, the undisputed AI leader. Last night, Taiwan Semiconductor ((TSM - Free Report) ), an NVDA supplier smashed EPS expectations and raised forward guidance. Because AI is the leading growth industry in the current bull market, the positive price action is bullish in the intermediate to long term. Nevertheless, volatility may be in store for equities in the short term.
Short Term Market Volatility is Possible
There are a few market indicators that suggest there may be some short-term volatility ahead, including:
Overly Bullish Sentiment
According to the CNN Fear/Greed indicator investors are exhibiting “extreme greed”. Often, when all investors are on one side of the bus the market needs to take a breather and digest gains.
Image Source: CNN
QQQ Approaches All-Time High Resistance
The Nasdaq 100 Index ETF ((QQQ - Free Report) ), the leading index, is approaching all-time highs. An index rarely blows through a previous high without some hesitation or digestion.
Image Source: TradingView
Election Jitters
With the country divided and each presidential candidate proposing two completely different paths, investors could show some trepidation before the November election. The S&P 500 Index ((SPY - Free Report) ) pulled back amidst uncertainty before the 2016 and 2020 presidential. However, stocks rallied strongly post-election.
Bottom Line
Stocks remain firmly in a bull market, and the leading AI industry shows no signs of slowing. Nevertheless, investors may want to take their foot off the gas into late October, as some short term volatility may loom.