I've brought out a former theme of AllAllan/Blue Line Trading System, where we characterized trades that combined the best of fundamental and technical analysis to uncover high probability trades. I named it, Confirmatory Analysis. This weekend brings both the first weekend update of August and what could be a timely confirmatory analysis pick: Shorting the semiconductors. Before we get into the details, a warning: Only the fundamental side of the story has triggered, i.e., a semiconductor bubble. The technical component requires a breaking down of price below multi-month support. That, for lack of a better word, is pending. The trigger is set out in the charts below. Memorize it, because when it happens, expect a cascading waterfall decline. We are not the only folks who will be watching this trigger, so be ready. The Technicals Micheal Burry has been shorting the heck out of semiconductor stocks. He has so far, been on the wrong end of that trade. His premature bearishness may be running its course and I present below, my reasoning for bringing this to everyone's attention on August 1st is set out in a few, simple, color coded lines on this chart: SMH 2-Day A breakdown of the trendline up from the late March, 2026 lows is our signal to join Burry in his short, via the SMH Sep 18th $400P. This is our next most likely 10-bagger of the year (and yes, I consider the recent USO trade our first 10-bagger of the year.) We may be early, but we are not going to miss the massive reversal that is now overdue in this sector. If not by the third week in September, we will try again down the road. For now, the first close below support is our trigger, whenever it occurs. At the end of this Update, I'll summarize the fundamental basis for Burry's bearishness, it is compelling, even for a chartist like myself. The Big Short, Part II: Self-Fulfilling Prophecy? That Burry has been shorting Semiconductors is not any big secret. Everyone who has heard of Burry and The Big Short is aware of his position. The fact that he has been wrong, or more ominously, early, hasn't been lost on everyone, either. As pointed out yesterday, he was also wrong, or more accurately, early, on buying MSFT under $400, a position that has paid off mightily this past week. That too, has not been lost on everyone. At the first hint that his short semiconductor trade is turning out to be spot-on, expect one of the most crowded short positions since, well, since shorting the financial sector circa, 2007-2008, as in, "The Big Short." SMH 240 Min Likely our trade trigger chart - in the days-to-weeks ahead. SMH 120 Minute This two-hour chart of SMH closed Friday right on the short-term bullish trendline. Either this trendline will provide support, or, it will not. If not, it may be an early trigger for fresh down leg taking out all three blue trendline support levels. However, the shorter-term trendlines have a tendency toward false breaks, maybe about half the time. Stand-by for a follow-up, if necessary, early next week. SMH Sep 18th Puts Our sweet spot for Sep @ $400 (prices shown as of Friday's close). The Fundamentals Note: No matter how persuasive the fundamental argument may be, without price leading the way, it is just another theory that seeks to explain the unexplainable. Michael Burry's Case Against Semiconductors, from where else, Elon's favorite AI tool, "Grok": Michael Burry and others have drawn multiple parallels between the current AI/semiconductor boom and the late-1990s/early-2000s dot-com bubble. Here is a structured review of the key similarities (and notable differences) based on Burry’s commentary and broader analysis: Key Parallels Highlighted by Burry Extreme technical extensions: The Philadelphia Semiconductor Index (and SOXX) has traded at historically large premiums above its 200-day moving average—levels last seen near the March 2000 peak. Burry has repeatedly called this out as a classic late-cycle signal. “Picks and shovels” leader: Nvidia is framed as the modern Cisco. Cisco surged ~3,800% from 1995–2000, became the world’s most valuable company, then collapsed >80%. Burry describes Nvidia as the company with “the picks and shovels for all and the expansive vision to go with it.” Capital concentration & FOMO: ~87% of recent venture-capital funding has flowed into AI (vs. <40% for internet companies in 1999). High-yield (junk) bond issuance linked to AI is ~38%, close to the 40–50% TMT (tech-media-telecom) share in 2000. Circular financing / self-referencing demand: Dot-com era featured vendor financing, circular deals, and overbuilt capacity (e.g., “dark fiber”). Burry cites the 2026 BIS report showing much AI semiconductor demand is off-balance-sheet and circular rather than pure end-customer pull. Late-cycle capacity announcements: Massive simultaneous buildouts (Samsung/SK Hynix mega-hubs) echo the overcapacity that marked the end of prior tech cycles. Market psychology: Non-stop narrative dominance (“Absolutely non-stop AI”), greater-fool dynamics, and a sense of “the last months of the 1999–2000 bubble.” Broader Market Parallels High market concentration in a handful of leaders. Capex intensity that, in some measures, exceeds the late-1990s telecom/internet infrastructure boom as a share of the economy. Speculative fervor and narrative-driven valuations that can detach from near-term returns on invested capital. Important Differences (Counterpoints Often Raised) Profitability & cash flow: Many of today’s leaders (Nvidia, Microsoft, etc.) generate massive free cash flow and high margins, unlike the large number of zero-revenue dot-com companies. Valuation levels: Aggregate forward P/Es are generally lower than the extremes of March 2000 (though concentration risk is higher). Underlying technology: AI has clearer near-term commercial applications and is backed by profitable hyperscalers, whereas many 1999 internet ideas were pure speculation. Balance-sheet quality: Current debt is often investment-grade and backed by stronger companies, though Burry disputes that it is meaningfully “cleaner.” Bottom line: Burry sees the technical extremes, capital concentration, circular demand, and late-cycle supply signals as sufficiently similar to the final stages of the dot-com bubble to justify significant short exposure. Critics emphasize that today’s leaders are far more profitable and that the technology itself has stronger fundamental underpinnings. History shows that even “real” transformative technologies (internet, railways, etc.) can experience severe interim corrections when capacity and expectations overshoot. Epilogue After letting this update sit for a couple of hours before posting, I have one final thought to finish the theme. The collapse presaged by the above analysis will happen, we just don't know when. The lines I draw on these charts are really just excuses to take trades in the direction of the breaks, if and when they occur. Nimble traders can make a living with such a regimen, but that is not what we are looking for here. Instead, we are looking for one exceptional trade, the heart of which is the, "10-bagger," resolution. If not by September, we will try again further down the road. If not this year, then next. That's the option game we chose to play; remember, when it finally does come together, it will be a glorious sight to behold. ----- Active Options PRO Service Premium Service
