Author: Long Yue
U.S. tech momentum stocks staged a sharp rebound on Tuesday (July 21).Morgan Stanley's TMT momentum factor surged more than 12% in a single day, marking its largest single-day gain on record, even surpassing any single-day performance during the 2000 dot-com bubble. Goldman Sachs's High Beta Momentum Long Index (GSCBHMOM) rose about 8.5%, its strongest single-day performance since April 2025; the Long/Short High Beta Momentum Index (GSPRHIMO) jumped 9.5%, its strongest since 2021 and nearing historical highs since 2003.
The Nasdaq Composite Index rose about 1.3%, leading the three major indices.The semiconductor sector was the biggest driver—the Philadelphia Semiconductor Index (SOX) gained 4.6%, while the VanEck Semiconductor ETF (SMH) rose about 4.5%. Micron Technology surged over 10%, Intel gained about 8.6%, SanDisk jumped about 14%, Cerebras Systems climbed about 18%, and Cipher Mining soared over 11%.
This rebound followed three consecutive days of declines and came after momentum stocks had plummeted 33% cumulatively.
Why This Rebound? Short Sellers Get "Squeezed"
To understand this rebound, one must first understand how deep the prior decline was.
Goldman Sachs data shows that high-beta momentum stocks plunged 33% cumulatively in just a few trading days, one of the most severe drawdowns since the dot-com bust. The Goldman Sachs High Beta Momentum Index briefly fell below its 200-day moving average, hitting its lowest level since January this year, with oversold conditions being the most severe since last August.
The deeper the fall, the greater the rebound's elasticity—a basic market principle.
This rebound was largely a "short squeeze" scenario. Investors heavily shorting momentum stocks, particularly trend-following traders in South Korea and Japan, suffered heavy losses in the past two weeks—the Korean market even saw large-scale margin call events that devastated local retail investors. When these short sellers are forced to cover their positions, buying forms a self-reinforcing upward spiral.
Zacks Investment Research analysis pointed out that Micron Technology had previously broken below the "head and shoulders" neckline on its daily chart, a bearish technical pattern. But its stock price surged over 10% on Tuesday, reclaiming the neckline. "False breakouts often trigger violent reversals because late-to-the-party shorts and bears get trapped."
Market Breadth Remains Weak, Rebound's Quality Questionable
The rebound numbers look astonishing, but the internal structure is not healthy.
BTIG strategist Jonathan Krinsky analyzed that Tuesday's overall trading volume was low, with SPY, QQQ, and S&P 500 spot volumes all 20% to 30% below their 20-day averages. Meanwhile, although the S&P 500 index rose nearly 1%, declining stocks still outnumbered advancing ones—this marks the highest frequency of price-breadth divergence this year, and it occurred again on Tuesday.
Goldman Sachs trader data shows overall exchange volume was about 17% below the 20-day average, with market maker book liquidity at only $6.83 million, and market activity scoring a mere 3 out of 10.
In other words, this rebound resembles a concentrated surge in a few heavily weighted stocks, not a broad-based recovery.
Bloomberg macro strategist Michael Ball analyzed, "It's too early to call the end of the correction." Demand for put options on semiconductor ETFs and previous AI star stocks remains high. Negative Gamma exposure in Nasdaq, semiconductor ETFs, and related stocks means market makers will chase momentum rather than smooth volatility—amplifying both upswings and downturns.
BTIG Warns: Rebound Has Hit Key Resistance, Advises Selling into Strength
Not everyone is optimistic about this rebound.
BTIG's Jonathan Krinsky explicitly warned, advising investors to "fade" the rally. He previously predicted momentum stocks would encounter strong resistance in the 730-750 range, and Tuesday's rebound precisely pushed the GSCBHMOM to the lower end of that resistance zone.
Krinsky stated: "Extreme volatility, combined with historic individual stock divergence, signals the market is undergoing a full-blown correction." He expects high-beta momentum stocks to start stalling on Wednesday-Thursday as they enter the core of the resistance zone.
Historical data shows that since 1999, the High Beta Momentum Long Index has recorded single-day gains exceeding 7% above its 200-day moving average only 10 times. Three occurred this year, three in early 2021, and three in early 2000. Krinsky noted this data "illustrates both the rarity of this move and that we continue to see statistical parallels to the 1999-2000 period."
Goldman, UBS: Momentum Sell-off Nearing End, Suggest Gradually Adding
Unlike BTIG's caution, Goldman Sachs and UBS both believe this momentum sell-off is nearing its end and suggest investors seize the opportunity.
Goldman's Julia Mensch noted in a report that Goldman had signaled last week the momentum sell-off was "entering late stages." She wrote: "With positioning already significantly reduced (Goldman Prime data shows momentum exposure at the 64th percentile over the past year, 93rd over five years), and with no new fundamental catalyst behind this sell-off, we see room for momentum to revert to its longer-term trend. This sell-off may be a good opportunity to add momentum exposure or buy AI stocks on the dip."
UBS Head of Hedge Fund Equity Derivatives Sales Michael Romano expressed similar views in a client note, citing improving AI fundamentals as a buy signal. However, he advised investors to "build positions gradually, rather than going all-in at once."
Romano wrote: "Momentum derisking is and remains a compelling call. Phasing in is prudent." He expects the momentum sell-off to bottom by the end of July (if it hasn't already) and stated: "Once the tide turns, I expect liquidity to push prices to overshoot on the upside."
Nevertheless, Goldman also retains some reservations—given recent extreme volatility and the dense earnings season, Goldman suggests investors gain exposure via "limited-loss structures" rather than direct long holdings.
Earnings Season Is the Next Key Variable
The sustainability of this rebound depends heavily on this week's earnings.
According to Reuters, 113 S&P 500 companies (representing about 18% of the index's market cap) report earnings this week. Among them, Alphabet's (GOOGL) report is seen as "the most important data point this week", with the market focusing on its full-year 2026 capital expenditure guidance—widely expected to be raised, providing crucial clues on the direction of AI spending.
LPL Financial Chief Technical Strategist Adam Turnquist said: "The focus now isn't just the total capex. The next focal point will be return on investment and the quality of spending, which we believe will become a core topic in the second half."
He added: "We expect continued volatility in the semiconductor sector as overbought conditions need to be digested, profit-taking pressure will emerge, and crowded positioning needs to unwind. Fundamentally, we don't see any material changes."
According to Reuters, so far, 66 S&P 500 companies have reported, with about 88% beating analyst profit estimates. 3M (MMM) surged over 9% and General Motors (GM) gained about 5%, both chased higher due to better-than-expected results.
Bonds & Macro: Another Hidden Risk
While the stock market celebrates, the bond market is sounding a warning.
Treasury yields rose across the board, with the short-end 2-year yield up 5 basis points and the long-end 30-year yield up 2 bps. Long-end yields climbed to two-month highs, eroding bond gains from last week's lower-than-expected inflation data.
Oil prices were one driver. Brent crude futures closed back above $90 per barrel for the first time since June 11. Middle East tensions continue to simmer—Yemen's Houthis announced a blockade of the southern Red Sea entrance, and two tankers carrying Saudi crude turned around in the Red Sea. Kpler's MarineTraffic data shows that even before the blockade announcement, cargo loaded passing through the Bab el-Mandeb Strait had fallen 34% over the past two weeks.
RBC Capital Markets rates strategist Izaac Brook said: "Today's market move is primarily the result of persistently higher energy prices. Rate moves are amplified by breaking through closely watched technical levels—4.20% for the 2-year and 4.60% for the 10-year—and the typically low-liquidity summer trading environment."
Bloomberg's Cameron Crise warned that long-bond yields are at a critical point where 5% could shift from resistance to support, with the next obvious target being 5.5%—"which would be a shock for equities, particularly if an upside economic surprise pushes yields higher and acts as a headwind for stocks."
Goldman Sachs IG credit head Kevin Boova also warned that credit spreads for hyperscale tech companies have hit new highs, "the hyperscale cloud/AI/data center space feels a bit fragile again."
