Tastytrade founder Tom Sosnoff expects the pullback in the market’s most crowded chip stocks to continue, telling CNBC Monday morning that the rally’s biggest winners have yet to fall anywhere close to oversold levels.
The big names at “the top of the funnel”—pointing to Nvidia Corp. (NASDAQ:NVDA), Advanced Micro Devices Inc. (NASDAQ:AMD) and Micron Technology Inc. (NASDAQ:MU)—are carrying the broader market, he said.
The problem? When leadership is this narrow, and such a small group of tech stocks powers a large share of the market’s gains, as has been the case in recent years, weakness in a few names can drag on major indexes more than usual.
- NVDA stock is moving Monday. See the chart and price action here.
Intel Stands Apart
Sosnoff argues that the recent declines in Nvidia, AMD and Micron have been sharp but not deep enough to wash out the excess. Before he calls any of them oversold, he wants to see a 25% to 35% drop. Anything less, in his framework, still looks like an ordinary pullback for stocks with such large runs behind them.
Intel Corp. (NASDAQ:INTC) is the exception in Sosnoff’s view. The tech company’s shares, trading around $65 after its own selloff, are arguably already oversold.
Intel shares plunged 28.58% on Friday, one of the steepest single-day drops in the company’s history, and were trading near $65 on Monday, per Benzinga Pro data. The collapse helps explain why Sosnoff views Intel as arguably oversold while still expecting more downside in Nvidia, AMD and Micron.
A Choppy Week Ahead
Sosnoff expects trading this week to be “choppy” and cautioned against chasing Monday morning’s rebound, saying the bounce was a hard spot to buy.
Better opportunities, he suggested, are more likely to appear around midweek, when oversold conditions in individual names could set up cleaner entry points.
Timing matters in his playbook. Waiting a day or two for sellers to exhaust themselves can produce a far better price than jumping in on the first green candle.
His outlook reflects his background. Sosnoff co-founded the thinkorswim trading platform before launching tastytrade, and both businesses center on options trading, volatility and active risk management. His calls tend to focus on price levels and probabilities rather than long-term conviction on a single company.
What Traders Are Watching
The key question is whether chip leaders can find support or whether Sosnoff’s 25% to 35% threshold comes into play. A decline of that size in Nvidia, AMD and Micron would mark a significant reset for the stocks most responsible for the market’s gains.
Apple Inc. (NASDAQ:AAPL) and Palantir Technologies Inc. (NASDAQ:PLTR) headline a crowded week of earnings, with both on Monday’s calendar and AMD scheduled to follow after Tuesday’s close, giving traders a fresh read on tech demand after disappointing reports from Meta Platforms (NASDAQ:META) and Alphabet Inc. (NASDAQ:GOOGL) rattled the sector last week.
Traders will be watching Monday’s and midweek price action closely for signs of capitulation, including heavy volume and sharp intraday reversals. Sosnoff’s read suggests any real bottom in the group is still some distance away.
Image: Shutterstock
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