Sharp losses in high-flying momentum stocks could offer a chance for investors to buy on the dip, according to Goldman Sachs’ trading desk. The traders pointed to previous rebounds following similar declines in Goldman’s High Beta Momentum basket, along with the current technical setup, as indicators of a potential turnaround.
Historically, when the long-short momentum basket has dropped 10 per cent or more over a five-day period, it has risen in the following week 80 per cent of the time. The median return in the subsequent week was 4.5 per cent, and over 11 per cent in the following month. This week’s declines were largely driven by losses in the long leg of the basket, particularly in AI-related themes. The basket fell 13 per cent between August 6 and August 19, after trading near an all-time high.
The momentum basket is currently trading near oversold territory and approaching the lower boundary of its regression channel, which could signal a potential bottom. It has also fallen below its 200-day moving average, a level that may act as major support. Key stocks like Palantir Technologies, Advanced Micro Devices, and Super Micro Computer have experienced significant losses recently.
However, Goldman Sachs’ traders noted that upcoming tech earnings, particularly Nvidia’s results on August 27, could influence the market. It’s also worth noting that the Nasdaq 100 Index is trading at a premium, and concerns exist regarding competition from China and the effectiveness of generative AI initiatives. This year has already seen multiple retreats in Goldman’s High-Beta Momentum basket.
