Before the open this morning, I posted my updated Scorecard graphs in the room and flagged SMH as the big one. It had dropped to bearish readings for the first time in well over six months, and it was already trading below $500 before the bell. By mid-morning, SMH had traded as low as $448, QQQ had lost $680, and the S&P 500 was down nearly 4% at its lows. Let’s take a deeper look at the SMH Scorecard warning:
The SMH Scorecard Warning Came Before The Open
SMH started November averaging -55% of its best Scorecard score, which is bearish territory on my rankings. I have not seen a reading like that from SMH in well over six months. My note to the room was that bulls needed to work incredibly hard to close SMH back above $500 by the end of the week. Without that close, the Big 3 Squeeze in the most important part of this market could begin to fire short.
QQQ was flashing the same warning. It started the month at -42% of its strongest score, the worst average since I began tracking this data. My line for QQQ was $680. If that level failed as support, the odds quickly favored another big break lower.
SMH Lost $500 At The Open
SMH closed Wednesday at $504.27 after holding the $500 put wall. This morning it gapped more than 4% lower to open at $482.14, then sold off to $448.13 before 10 a.m. CT. That is an 11% drop from Wednesday’s close.
The rest of the chips broke with it. MU closed Wednesday just under its $800 put wall at $795.23, then opened at $752.69 and traded as low as $655.85. NVDA lost the $200 level at the open and traded as low as $181.55. On Wednesday I told the room that SMH breaking $500 would guide the rest of tech lower. Today it happened in exactly that order.
SMH, Daily Chart 11.05.26
Why The SMH Scorecard Warning Spread to QQQ
QQQ opened at $683.12 and lost $680 in the first 15 minutes. By mid-morning it had traded down to $647.12, a 6.5% drop from Wednesday’s close of $691.95. The $680 failure was the trigger I gave the room before the open, and the break lower came right behind it.
Even SPY gave no shelter. On Wednesday’s close, SPY ranked neutral bullish on my Scorecard because money was rotating into XLE, XLV and XLP. This morning it opened near flat at $765.47 and slid to $737.11, a drop of nearly 4%. Rotation into defensive sectors held the index ranking up while the leaders underneath it weakened, which is why I called the chips the big one.
The Big 10 basket was already sitting at a negative average for the month heading into today. On Tuesday it printed -26%, the second weakest reading since I started tracking it in May. Longs in these names get easier when that average turns positive. Until then, I proceed with caution.
Why I Cut My SPX Put Credit Spread At Breakeven
I was already trading this tape defensively a week before the SMH Scorecard warning printed. On Friday, October 30th, Nasdaq futures were down about 2.5% before the open and undercutting the October 23rd low. My plan going in was to sell a put credit spread on SPX or QQQ near key support.
At 9:16 a.m. CT, I sold the same day SPX 7600/7590 put credit spread for $3.50, with $7600 as the put wall. A minute later I had an exit order working at $1.50, with a note to the room to accept the max loss if the market really began to break down. At 10:10 a.m. CT, I moved the exit to $2.00 because another grind up into the high of the day would likely fill it.
That grind never came. The pressure on the lower timeframes was not backing off, so at 10:20 a.m. CT I cut the spread loose at $3.40 for roughly breakeven. $7600 could still have produced a bounce, although I was not willing to wait on it with the tape acting that way.
SPX, 5min Chart 10.30.26
What Ends The SMH Scorecard Warning
The first thing I need is SMH closing back above $500, which after today is a long way from here. For QQQ, the first real sign that a bottom is in is the Scorecard ranking crossing back to positive. I also want the Big 10 average turning positive for the month. Until those show up, chips are not a buy for me. I laid out the levels going into this week in Tuesday’s AMD earnings squeeze breakdown.
I typically post the Scorecard graphs before the open each morning in the Compounding Growth Rooms, which is where the SMH Scorecard warning went out first.
No new longs in chips until SMH closes back above $500.
Stay Focused,
Taylor Horton
My Big 3 Market Scorecard flagged SMH as bearish before the open this morning, the first reading like that in well over six months. Get the same daily rankings of the strongest indexes and sectors, plus my list of A+ squeezes, before the bell every day. Get the Scorecard.