Tech Momentum Surges 12% in Record Squeeze Amid Bond Yield Warnings

Woofun AI reports that U.S. tech momentum stocks staged a historic rebound on July 21, with Morgan Stanley’s TMT momentum factor surging over 12% in a single day—the largest one-day gain on record, surpassing even the peaks of the 2000 internet bubble. Goldman Sachs’ high beta momentum long index (GSCBHMOM) climbed approximately 8.5%, marking its strongest daily performance since April 2025, while the long-short high beta momentum index (GSPRHIMO) jumped 9.5%, its best show since 2021 and approaching levels unseen since 2003. The Nasdaq Composite Index led major benchmarks with a 1.3% rise, propelled largely by the semiconductor sector, where the Philadelphia Semiconductor Index gained 4.6% and the VanEck Semiconductor ETF rose about 4.5%.

The breadth of this rally was concentrated in specific names rather than broad-based strength. Micron Technology surged over 10%, Intel rose approximately 8.6%, SanDisk increased about 14%, Cerebras Systems jumped roughly 18%, and Cipher Mining climbed more than 11%. This explosive recovery followed three consecutive trading days of decline and a cumulative drop of 33% in momentum stocks, suggesting a violent reversal rather than a steady trend. The magnitude of the prior drawdown was severe; Goldman Sachs data indicates that high beta momentum stocks fell a cumulative 33% in just a few trading days, representing one of the sharpest pullbacks since the internet bubble burst. The high beta momentum index briefly dipped below the 200-day moving average, hitting its lowest point since January of this year, with overselling conditions reaching their most extreme level since August of last year.

Structurally, the rebound was driven by a classic short squeeze mechanism. Many investors who had shorted momentum stocks, particularly trend-following traders from South Korea and Japan, suffered heavy losses over the preceding two weeks. The South Korean market experienced large-scale margin call events that severely impacted local retail investors, forcing these short sellers to cover their positions. This forced buying created a self-reinforcing upward spiral. Zacks Investment Research analysts noted that Micron Technology had previously broken below the 'head and shoulders' neckline on the daily chart, a bearish technical pattern.

However, on Tuesday, the stock price surged over 10%, reclaiming the neckline. 'False breakouts often trigger violent reversals, as late-to-the-game shorts and short sellers get trapped,' the analysts observed, highlighting how technical traps can accelerate price movements.

Notably, despite the impressive headline numbers, the internal structure of the rebound remains fragile. BTIG strategist Jonathan Krinsky analyzed that overall trading volume on Tuesday was low, with SPY, QQQ, and S&P 500 spot trading volumes all falling 20% to 30% below the 20-day average.

Meanwhile, the S&P 500 index rose nearly 1% that day, but the number of declining stocks still outnumbered advancing stocks—a divergence that has been the most frequent this year.

Woofun AI data shows that overall exchange trading volume was about 17% lower than the 20-day average, with market maker liquidity at only $6.83 million and market activity rated merely 3 out of 10. This suggests the rally was a concentrated explosion of heavily weighted stocks rather than a broad recovery.

Bloomberg macro strategist Michael Ball added that 'it is still too early to declare the adjustment over.' Demand for put options on semiconductor ETFs and previous AI star stocks remains high, creating negative gamma exposure for the Nasdaq, semiconductor ETFs, and related stocks. This dynamic means market makers will chase prices rather than stabilize volatility, amplifying both upward and downward movements. BTIG’s Jonathan Krinsky explicitly warned of 'profit-taking at highs (fade),' predicting that the momentum stock rebound would encounter strong resistance in the 730 to 750 range. Tuesday’s rebound pushed GSCBHMOM to the lower edge of that resistance zone. Krinsky stated: 'Extreme volatility, combined with historic stock differentiation, signals that the market is undergoing a comprehensive correction.' He expects high beta momentum stocks to stagnate after entering the core of the resistance zone from Wednesday to Thursday.

Historically, such gains are rare. Since 1999, the high beta momentum long index has seen single-day gains exceeding 7% above the 200-day moving average on only 10 occasions. Three of these occurred this year, three in early 2021, and three in early 2000. Krinsky pointed out that this data 'indicates both the rarity of this market and the ongoing statistical characteristics reminiscent of the 1999 to 2000 period.' In contrast, Goldman Sachs and UBS believe the momentum sell-off is nearing its end. Goldman Sachs’ Julia Mensch noted that the sell-off is 'in its later stages,' citing that momentum exposure is at the 64th percentile of the past year and the 93rd percentile of the past five years. With no new fundamental catalysts behind the sell-off, she believes momentum has room to revert to long-term trends, presenting an opportunity to increase exposure or buy AI stocks on dips.

UBS hedge fund equity derivatives sales head Michael Romano echoed this view, stating that improvements in AI fundamentals signal a buying opportunity.

However, he advised investors to 'build positions gradually rather than going all-in at once.' Romano wrote: 'De-risking momentum is still a compelling judgment. Gradual accumulation is a prudent move.' He expects the momentum sell-off to bottom out by the end of July, noting: 'Once the market turns, I expect liquidity to push prices to overshoot upward.' Goldman Sachs also suggested using 'limited-loss structures' rather than direct long positions, given the high volatility and upcoming earnings season.

The sustainability of this rebound hinges on this week’s earnings reports. According to Reuters, 113 S&P 500 constituent companies, accounting for about 18% of the S&P 500 market cap, will report earnings. Alphabet (GOOGL)’s report is viewed as 'the most important data point of the week,' with markets focusing on its full-year capital expenditure guidance for 2026, which is widely expected to be raised. LPL Financial’s chief technical strategist Adam Turnquist stated: 'The focus now is not just on the total capital expenditure, but the next focus will be on return on investment and the quality of spending, which we believe will become a core issue in the second half of the year.' He also noted that the semiconductor sector will likely continue to experience volatility as overbought conditions are digested and crowded positions cleared.

So far, 66 S&P 500 companies have reported earnings, with about 88% exceeding analyst expectations. 3M (MMM) rose over 9% in a single day, and General Motors (GM) rose about 5%, both due to better-than-expected performance.

However, macro risks persist. U.S. Treasury yields rose across the board, with the 2-year yield increasing by 5 basis points and the 30-year yield rising by 2 basis points, erasing bond gains from last week’s lower-than-expected inflation data. Brent crude futures closed back above $90 per barrel for the first time since June 11, driven by escalating tensions in the Middle East. Houthi forces in Yemen announced a blockade of the southern entrance to the Red Sea, causing two tankers carrying Saudi oil to turn back. Kpler’s MarineTraffic data shows that cargo loading through the Bab el-Mandeb Strait had already decreased by 34% over the past two weeks.

RBC Capital Markets interest rate strategist Izaac Brook stated: 'Today's market movement is primarily the result of rising energy prices. The volatility in interest rates has been amplified due to breaking through key technical levels------the 2-year yield at 4.20% and the 10-year yield at 4.60%------and the typical low liquidity trading environment of summer.' Bloomberg’s Cameron Crise warned that long-term bond yields are at a critical point of turning 5% from a resistance level to a support level, with the next obvious target being 5.5%. 'This will impact the stock market, especially when economic growth exceeds expectations, pushing yields higher and negatively affecting stocks,' Crise said. Goldman Sachs IG credit head Kevin Boova also warned that credit spreads of mega-cap tech companies have reached new highs, concluding that the mega-cap cloud computing, AI, and data center sector feels somewhat fragile again.