If I were creating a list of the top things investors and traders misunderstand about exchange-traded funds (ETFs), it would include this — they are not just for buying and selling the ETF itself. ETFs have brought a wide range of indexes to investors. Each index aims to be a filter, a screener. It does some of the work for us. We should take advantage of that.
That brings me to the artificial intelligence (AI) trade, which has been a sick puppy recently. The Global X Artificial Intelligence & Technology ETF (AIQ) is a diversified basket that avoids the heavy concentration of the Magnificent 7. And that makes it a cleaner gauge for the health of the broader AI theme. That ETF is flashing mixed technical signals that suggest a shift from a vertical rally into a period of higher volatility and testing.
Let’s take a technical look into AIQ to see if this is more likely another buy-the-dip moment — or something more sinister. Because Mag 7 stocks taking a breather while other AI players catch a bid could actually be a healthy sign of market broadening. That’s not my conclusion, but it pays to be balanced in our analysis at all times.
The Thematic Bear Market Warning Signs
A thematic bear market occurs when the fundamental story of the industry breaks down, often marked by heavy outflows and major technical breakdowns.
AIQ recently experienced a significant outflow of assets under management — about 5% of its shares, more than $400 million, in just one week. Continued large-scale redemptions would signal that institutional money is exiting the theme entirely.
The best bull case these days? The same one that’s been in place for more than three years. AI is the future, and it gets closer to generating a return on investment from the trillions worth of effort being thrown at it. Especially by the biggest firms, the hyperscalers.
Let’s check out what’s in AIQ, since the goal here is to see if we can pick and choose from among its holdings list. The ETF, or theme-level, picture is deteriorating quickly. That’s what I see in this chart. That PPO at the bottom is leaking badly. And the 50-day moving average just turned down as well. That’s a strong sign of more downside ahead.
When I pair that with a reward opportunity and risk (ROAR) analysis, to translate the “eyeball” chart view into a statistical conclusion, we see it correlates. The score for AIQ hung around the 60 level for a while (60 days ago, 40 days ago, and 20 days ago), then slipped toward the bottom of neutral territory (a score of 40 as of 10 days ago).
As the color-coded price chart shows at the bottom, the ETF’s price was highly indecisive during that time. Then, more recently, it started to make its move. Lower.
AIQ’s ROAR score dipped into the higher-risk range very recently and currently stands at 20. In layman’s terms, it has about a 20% chance to rally 10% before falling another 10%.
A Closer Look at AIQ’s Holdings
Here are the top holdings. You see the allocation weights are similar. This is an equal weighted ETF, so it's a good watchlist. It is not overloaded with a few stocks, as is the case with so many tech ETFs.
I went through each of the stocks above, looking for charts that at least had a chance to buck the latest downtrend. Here are a few I identified.
Oracle (ORCL) leads off, and the real question is, “Is that enough?” As in, the stock has been dropping consistently since September, right after it jumped about 30% in a single day. That rally and crash led to where it is now, trading where it did in September of 2024. I do see at least a fighting chance of a bottom, given that it has fallen to familiar territory. But I can't do it alone. The rest of the market will need to go up with it.
Salesforce (CRM) is actually being hurt by AI, at least according to popular opinion lately. And we know that stock prices respond to that. This could be another falling knife, but at least I see a slowing PPO. So that’s at least something to watch for a bottoming process to begin.
And lastly, Synopsys (SNPS) is another mess, but one worth watching. As with all of these stocks within AIQ, this is more for a trade at first. The long-term picture is very cloudy. But bounces can be powerful and profitable. SNPS is in a wide trading range — and toward the bottom of it. So if AIQ-style stocks get to rallying again soon, this one could be a high beta play.
The Bottom Line
As with all of these stocks within AIQ, this is more for a trade at first. The long-term picture is very cloudy. But bounces can be powerful and profitable.
Remember, ETFs are not just for investing in directly. And with Barchart’s tools, it is very time-efficient to take most ETFs and bring up all of their charts using the flipcharts feature. So take advantage of it.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob's written research, check out ETFYourself.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
More news from Barchart
- Why 1 Analyst Just Raised His Micron Stock Price Target by 30%
- As Microsoft Bets on ‘True Self-Sufficiency,’ Should You Bet on MSFT Stock?
- Don’t Fall for False Buy Signals! How to Find Better Trade Entries
- You May Never Have Heard of Corsair Gaming But Its Stock Just Jumped 50%. Should You Buy Shares Here?
