Chip stocks had a tough summer. You had a tough summer. Your neighbor had a tough summer. The difference is chip stocks are "firming up" now and you're still checking your Robinhood account at 3 a.m. wondering where it all went wrong.
Katie Stockton likes the trend in Arm Holdings. She broke down the charts. Retail traders saw this and immediately assumed they'd discovered alpha. They had not discovered alpha. They'd discovered that someone named Katie looked at some lines and said she liked them.
Arm Holdings makes chip architecture. Their stock goes up sometimes and down other times. Technical analysts draw triangles on these movements and call it research. Katie Stockton drew her triangles. The triangles pointed in a direction she found appealing. CNBC turned this into a segment.
Here's what happened: Arm's chart showed a pattern. The pattern suggested momentum. Momentum suggested continuation. None of this predicted anything but it looked really convincing on a screen if you tilted your head just right and squinted through the desperation.
Retail traders are now piling into Arm because a technical analyst they'd never heard of until yesterday told them a line crossed another line in a way that historically has meant absolutely nothing seventy percent of the time. They're calling it a breakout. It's not a breakout. It's a chart that went up after going down after going up.
The tough summer for chip stocks is over until the next tough summer for chip stocks begins. Could be autumn. Could be winter. Could be Tuesday. Katie Stockton will draw new triangles when it happens and everyone will nod solemnly like she just translated the Rosetta Stone instead of pointing at a squiggly line that any drunk guy at a bar could've drawn on a napkin.
Arm Holdings is now a momentum play based on technical analysis, which is Wall Street's way of saying we have no f*cking idea but the chart looks pretty.
Photo by Marcus Reubenstein on Unsplash
Leave a Comment