THE ULTIMATE PAIRS TRADE: Why I'm Shorting Chips & Buying Software 🚨

Why It Matters

The trade highlights a near‑term opportunity to profit from a likely chip correction and a software rebound, offering investors a tactical hedge as broader market volatility looms.

Key Takeaways

• S&P shows rounded‑top and head‑and‑shoulders indicating potential decline.
• Software stocks are oversold; expect 10‑25% short‑term bounce.
• Chip stocks like TSM and Nvidia appear overbought; target 10‑20% pullback.
• Upcoming Nvidia earnings could confirm chip demand outlook.
• Pair trade: short chips, long software for next 3‑6 weeks.

Summary

Gareth Soloway, chief market strategist at VerifiedInvesting, outlines a contrarian pairs trade that pits overbought chip makers against deeply oversold software firms. He argues that the S&P 500 is forming a classic rounded‑top and head‑and‑shoulders pattern, suggesting a breakdown toward the 6,550‑6,790 range, while institutional money continues to sell into retail enthusiasm. The analysis hinges on several technical signals: distribution zones where institutions dump into retail, parallel resistance lines capping chip stocks like Taiwan Semiconductor (TSM) and Nvidia, and RSI readings below 20 for software names such as Adobe, Workday, and Oracle. Soloway expects a 10‑20% correction in chip equities and a 10‑25% rebound in software stocks over the next three to six weeks, especially if Nvidia’s earnings miss Wall Street expectations. He cites concrete chart examples—TSM’s repeated pullbacks at a resistance ceiling, Nvidia’s nascent head‑and‑shoulders formation targeting $150, Oracle’s bounce off 2025‑panic lows, and Adobe’s return to 2018 price levels—to illustrate why the market sentiment is skewed. The strategist also draws parallels to past cycles, likening the current software sell‑off to the 2025 AI‑chip correction and warning that cheap memory chips could face a solar‑cell‑style price collapse. If investors follow Soloway’s framework, they could capture modest gains by shorting chip names while buying software at technical support zones, positioning themselves for a short‑term swing before broader market pressures potentially trigger the S&P breakdown he forecasts. The trade’s success will largely depend on earnings outcomes and whether institutional selling intensifies.

Original Description

The AI narrative is fracturing, and it's creating one of the best swing trading setups of the year. In today's market update, Chief Market Strategist Gareth Soloway exposes the massive divergence happening right now in the tech sector: Software stocks are getting decimated on AI displacement fears, while Semiconductor stocks are pushing overbought extremes.

Gareth breaks down his exact "Pairs Trade" strategy for the next 3 to 6 weeks—shorting the euphoric chip makers while accumulating deeply oversold software names for a 10-25% relief rally.

But the broader market is flashing a severe warning sign. Gareth dissects the S&P 500 chart to show the active "Distribution" phase, where institutional money is quietly dumping shares into retail FOMO, forming a massive rounded top.

In this video, Gareth covers:

The S&P 500 Breakdown: The critical Head and Shoulders neckline sitting at 6,790. If this level breaks on a daily close, Gareth maps the immediate drop to 6,550, with a mid-year macro target of 6,100.

The Chip Short (NVDA, TSM, ASML): Why the semiconductor rally is running out of steam. Gareth outlines the resistance capping Taiwan Semi (TSM) and the ominous Head and Shoulders forming on Nvidia (NVDA) that targets $150. Plus, why commoditized memory chips face 50% downside risk.

The Software Bounce (ORCL, WDAY, INTU, ADBE): A masterclass in buying extreme fear. Gareth looks at severely oversold RSI levels and maps out the heavy institutional support zones for Oracle ($185 target), Workday ($115-$116 support), and Adobe.

Stop following the herd and start trading the probabilities.

"No BS. Just Charts."