I’ve noticed AI chip stocks have really pulled back recently. The SOXX fund, which is a good way to track the whole semiconductor industry, is down almost 16% from its peak in June. For a while, every dip was a buying opportunity, but now even regular investors like me are starting to take profits or cut losses.
This particular market pattern is unusual, according to Scott Rubner, who leads Equity Derivatives Strategy at Citadel Securities. He’s noted it has historically appeared around the lowest points of previous market declines, signaling potential temporary bottoms.
What Rubner Flagged
According to a report from Rubner in July, individual investors actually sold off their chip stocks on two days when prices dropped – July 2nd and July 7th – coinciding with a roughly 5% decline in the Philadelphia Semiconductor Index (SOX), which tracks major chip companies. It’s unusual for these investors to sell during periods of falling chip stock values.
Please note: We follow the performance of SOXX, which is an exchange-traded fund, instead of the SOX index directly, because the index itself isn’t available for trading.
He’s only seen around eight instances of this happen in the last year. Almost every time, it occurred near the end of a price drop, right before the chips started to recover. This article explores the idea that these events signal the bottom for AI chip prices.
Citadel benefits from a practice called payment for order flow, which allows them to execute trades from individual investors and gain insight into their market activity. This type of information is typically difficult to obtain.
Why We Rebuilt the AI Chip Signal
As a researcher, I’ve been trying to understand what’s happening behind the scenes with order flow, but that data is usually kept private. So, my team and I developed a way to reconstruct this signal using publicly available information. Specifically, we built something called our Retail Capitulation Radar – or RCR – which focuses on two leveraged exchange-traded funds focused on semiconductors, SOXL and SOXS. These funds are designed to amplify the daily movements of the semiconductor index by two or three times.
Retail traders dominate them. The RCR is our own bottom signal detector.
This kind of shift in investor behavior – where individual traders quickly sell off assets they’re optimistic about and buy those they believe will decrease in value – becomes apparent in trading patterns. During testing, a specific indicator signaled this twice, both times in early March 2026.
The chart illustrates the significance of this observation. While SOXX has fallen approximately 16% from its peak in June, it remains around 80% higher than its low point in March, which is when this pattern last occurred.
Let’s be clear: Citadel recorded eight trades, but our public data source only showed two, and didn’t match the specific trading pattern from July. This difference could mean either our tracking method is too strict, or that publicly available information isn’t capturing everything Citadel was seeing in its own internal records.
Another Historical Pattern Shows Similarity
Both data sets show a consistent pattern. Looking at retail sales data from Rubner since February, chip prices increased in the five to ten days following each instance, with an average gain of around 18% over that period. The most recent example in March saw an even larger increase, about 29%.
The radar system is designed to be very cautious, so it only signaled potential issues twice. To confirm these signals, we ran another test that looks for any two-day period of weak performance across a wider range of chips. This broader test identified ten instances where the same thing happened, and those instances generally showed an average gain of around 7% in the following ten days.
This test data is less consistent than previous tests. We saw one instance in late February where values drifted downward for about three weeks before improving, meaning any upward trend we see now isn’t a guaranteed instant recovery – it’s just a sign of potential improvement.
What the AI Chip Signal Says Now
The timing isn’t ideal. Citadel noticed this opportunity back in early July, and prices have already started to increase, meaning this strategy isn’t as new or promising as it once was.
Currently, the radar isn’t signaling any major changes. It only activates when there’s significant selling combined with a declining market. While selling is higher than usual today, it hasn’t reached the level needed to trigger the signal. Plus, the market actually rose 5.45% today (according to Tradingview), and this tool doesn’t register gains.
Despite recent challenges, the demand for AI chip stocks hasn’t fully recovered. While many companies in this sector have seen price declines and weakening support, Nvidia and AMD have fared better, maintaining some buyer interest. This suggests they are well-positioned to drive any future recovery in the market.
A potential market reaction is brewing as Intel announces its earnings on July 23rd. Options traders are mostly betting that the stock price will fall – there’s more activity in put options (which profit from falling prices) than call options (which profit from rising prices). Experts predict the announcement could cause the stock to move up or down by around 5.2%.
The recent market recovery might not last. If Intel reports weak earnings, it could cause AI chip stocks to fall again, potentially confirming that the recent low was just a temporary pause. This is why traders are buying options as insurance against further declines, rather than betting on the stocks going up.
2026-07-22 21:52