EB Daily Market Report - Brief Update - Tuesday, July 30, 2024
Ok, well things are about to get interesting. After the bell today, Microsoft (MSFT) and Advanced Micro Devices (AMD) will report their latest quarterly results. Here are how the two stocks stack up relative to their software and semiconductor peers, respectively:
MSFT:
The character of the MSFT chart has changed for the worse. Recently, I suggested that software ($DJUSSW) could regain a leadership role in the market as semiconductors ($DJUSSC) tumbled. Clearly, that was a bad call. The big red circle shows that software has lost almost all of the relative strength the group enjoyed in June. The story that the charts are telling me is that whatever is coming is bad for all growth stocks. That suggests to me the cracks in the economic foundation that I've been discussing are likely to get worse and that the Fed has waited too long to lower rates. As a result, I'm currently expecting at least a 10% correction on the S&P 500 ($SPX), and maybe a 15% correction on the NASDAQ 100 ($NDX).
Getting back to MSFT, grow very cautious if MSFT does move higher after earnings this afternoon. Any trip on MSFT back to the mid- to upper-430s would be an outright sell for me. I'd need to see it clear its two key moving averages. We are seeing a death cross (20-day EMA moves below 50-day SMA), which likely spells more trouble ahead for MSFT and software.
AMD:
Ugly. That's about all I have to say. AMD has completely altered its relative course over the past 6 months and there's very likely a reason for it, one that we may find out after the closing bell today. Semiconductors are tumbling relative to the S&P 500 and, for 6 months now, AMD has been leading the group lower. Last night, during our Q2 Earnings event, I indicated 3 semiconductor companies, 2 of which that have been terrible relative performers vs. their semiconductor peers, could struggle with earnings. They are:
- Lattice Semiconductor (LSCC), whose relative strength has easily been the worst of all semi companies that are reporting earnings this week. LSCC came up 5% short on revenues, missed earnings expectations by a penny and today has tumbled nearly 10%. This is why I don't take ANY chances on companies showing poor relative strength heading into earnings.
- Rambus, Inc. (RMBS), another relative strength laggard by a wide margin, did beat its consensus EPS estimate, but missed its revenue estimates, and is down almost 14% today.
- Amkor Technology (AMKR), the best relative performer of the three, though still not good, beat both revenue and EPS expectations by a fairly wide margin and is down over 20% today.
It's hard to feel good about AMD heading into its earnings this afternoon. The stock market is PUNISHING semiconductor stocks. They are finding out what happens when the entire group, as a whole, gains 133% in just 7-8 months. They were priced for perfection and now Wall Street is taking no prisoners.
One other thought on semiconductors. I did my manipulation analysis on NVIDIA Corp (NVDA) to see if Wall Street has begun accumulating NVDA on its recent plunge. And the answer is a resounding NO. In other words, I'm not seeing any signs that NVDA has reached a tradable low just yet. It's definitely oversold and could bounce at any time, but I don't believe those gains will stick. I could easily see NVDA hitting 95 during the upcoming market weakness and, believe it or not, I could see NVDA fall to 75-80 before all this carnage has ended.
Thanks Fed Chief Powell. The stock market has begun to price many technology stocks as if a recession is on its way and it's been your "higher rates for longer" that's contributed to it. Speaking of the Fed, a 2-day meeting is underway that will likely culminate tomorrow at 2pm ET with no change in rates. Instead, the Fed will most likely choose to wait another 7 weeks to its September 17-18 meeting before cutting rates. They're about to pour salt in the wound.
We are seeing leadership once again from small caps (IWM, +0.67%) as the NASDAQ 100 ETF (QQQ, -1.19%) suffers yet another decline, both absolute and relative.
It's hard to say which way we go tomorrow with the Fed announcement, because the NASDAQ 100 and S&P 500 are clearly oversold short-term, but simply be ready to buckle up. I see further weakness ahead until we finally reach a bottom in September/October. I hope I'm wrong.
Happy trading!
Tom