Citadel Securities has flagged a rare pattern in the AI chip market: retail traders turned net sellers of semiconductor stocks during recent down days, a move that has historically marked local bottoms. The signal appeared on July 2 and July 7, 2024, as the Philadelphia Semiconductor Index (SOX) fell about 5%. The SOXX semiconductor ETF now sits roughly 15.7% below its June high.
What the Signal Says About the Bottom
Over the past year, Citadel identified only about eight such retail-selling episodes. Nearly all occurred late in a selloff, just before a bounce. In every case, chips rose over the next five to ten days, with a median gain of about 18% over ten days. The March 2024 episode saw a roughly 29% rise. A looser test — any two-day drop with broad chip weakness — caught ten cases with a median gain of about 7% over the next ten days, though one late-February episode kept sliding for three weeks.
How the Retail Capitulation Radar Works
Citadel's proprietary Retail Capitulation Radar (RCR) uses public data from leveraged chip funds SOXL and SOXS to confirm the signal. It has only confirmed two episodes this year, both in early March. The RCR is currently idle because selling pressure is elevated but not at the trigger level. The signal is now 'aging' as chips have rallied since early July.
Which Stocks Could Lead a Rebound
Nvidia and AMD have held buying support better than other chip stocks, suggesting they would lead any rebound. Their relative strength during the selloff points to them as potential leaders if the bottom signal plays out again.
The Intel Wild Card
Intel is scheduled to report earnings on July 23, 2024. Options traders are leaning bearish, with puts outnumbering calls, and the market expects a 5.2% swing around the report. A weak Intel earnings report could push AI chip stocks lower again, potentially re-arming the bottom signal. That makes Intel's report the next concrete event to watch for traders eyeing this rare retail-selling pattern.
