We’ve had a great one-week rally/bounce/whatever in chip stocks. Nvidia, for example, was up 17.42% for the week that ended on Thursday, July 21. Advanced Micro Devices (AMD) was up 8.71% in that same period. But I think there are good reasons for thinking that this move was just a very short-term gain in a long-term Bear Market that remains in place. So today, I’m taking some chip money off the table.
In the last week Technology stocks, and chip stocks in particular, have staged a very impressive rally off of a really low base. Nvidia (NVDA), for example, is up 17.43% in the week that ended on July 21. That still leaves the stock down 39.43% for the year. Advanced Micro Devices (AMD) is up 15.36% in the last week. And it’s still down 37.85% for 2022. Qualcomm (QCOM) is up 1.85% for the week. And down 16.26% for the year. Impressive. But I’d be more inclined to see this as a sustainable rally if stocks were rising across the board–with tech and chips leading the way, perhaps.
Instead what I’m seeing is a rotation from safe and less risky stocks
The Chips for America Act looks headed to a cloture vote in the Senate on Thursday. As the $52 billion bill now stands, it includes $39 billion for semiconductor companies to “build, expand, or modernize domestic facilities.” Here are the winners as I see them.
The bill, known as the Chips for America Act, is a pared-down version of a broader set of competition measures and would authorize $52 billion in grants and loans for chip manufacturers, as well as a new, four-year 25% investment tax credit for chip making. Senate Majority Leader Chuck Schumer has pressed for a vote today with final passage as early as next week.
On Tuesday, Snap (SNAP) fell 43.08% as the company lowered guidance for the remainder of 2022. Today, the shares were up 4.59%. At today’s close of $14.81 they’re still trading well below the 50-day moving average of $29.86. Should you chase them here? Macy’s (M) picked up 19.31% today on an earnings beat and higher guidance. Should you chase the shares higher? Or how about Nvidia (NVDA), which gained 5.16% on the day after an earnings beat and some positive statements about future products and product sales after the close yesterday. Should you buy the shares at today’s close of $178.51? That’s quite a bargain from the $333.76 that the stock sold for on November 29, 2021. A day like today when the market looks set to break a seven-week losing streak is tempting. Time to put some cash to work, no? Look at all the bargains? And the bear market is over–at least for a while, right? Bear markets are typically punctuated by days like today and a rally inside a bear market can go on for a while. This one, for example, could easily run into June or even July. And that means repeated temptation to jump back in. And repeated episodes of hard to suffer pain as stocks that you’ve sold for sound reasons climb well above your selling price. Bear market rallies are, I just want to remind you, exactly what make bear markets so damaging. Investors and trades face the losses from the overall market drop plus extra losses generated by buying into what looks like a rally off a bottom that turns out to be just a temporary step to even lower prices.
Nvidia (NVDA) reported fiscal first quarter 2022 earnings after the after the bell close today, Wednesday, May 25, of $1.36 a share against Wall Street projections of $1.30. Revenue of $8.29 billion beat projections of $8.10 billion. Revenue fromm the data center unit was $3.75 billion, topping estimates of $3.63 billion. Game revenue of $3.62 billion beat expectations for $3.53 billion.
But the company guided lower for the fiscal second quarter with revenue of just $8.1 billion against Wall Street projection of $8.4 billings. The war in Ukraine and COVID lockdowns in Chia will cost the company $500 million in revenue, the company said.
In after-hours trading Nvidia shares were down 6.62% as of 5 p.m. today, May 25.
The most important indicator of market direction and sentiment this week will be Nvidia’s (NVDA) earnings report for the quarter that ended in April on Wednesday, May 25\ Wall Street analysts and expect earnings of $1.09 a share. Last year Nvidia reported 78 cents for the quarter so hitting the analyst target this year would represented year over year earnings growth of 39.7% That kind of earnings growth is what investors expect from a stock trading at 43.76 times trailing 12-month earnings per share. In a normal market I’d expect traders to bid up Nvidia shares and Call options ahead of earnings
In my weekend Saturday Night Quarterback I said that this week would, probably, answer the question of whether Friday’s big bounce was just a bounce, the start of a buy on the dip rally, or even a bear market rally with a bit of staying power. Two days into the week I think the market action is moving in favor of a bear market rally, one of those often quite powerful upside moves that punctuate extended bear markets.
Here’s what caught my eye yesterday, April 18. For a big change from recent losses, the chip group of stocks was all in the green. And not just by a pinch either. Yesterday Nvidia (NVDA) was up 2.47%: NXP Semiconductors (NXPI) was up 1.91%; Synaptics (SYNA) was up 4.49%; and Qualcomm (QCOM) was up 1.76%. Is something going on in the sector?
I think these financial market curves will let you map out the longer stories of Federal Reserve interest rate increases and a potential recession–and then chart the shorter stories of war in the Ukraine, global oil and natural gas crunches, summer Pandemic relief, global food crisis, computer chip shortages (and whatever else you think might be important) under those longer curves. That will let you decide when to buy and sell (and what) in order to profit from short-term stories while preparing your portfolio for the longer arcs.
Right now investors and traders are getting a crash course in how vulnerable global supply chains are to disruption–especially when they become really extended. And how a supply chain disruption can ripple out in unexpected directions thanks to the complexity of many key products.
First, the Pandemic took a hammer to the complicated logistical systems required to get Commodity A to Sub-assembler B in order to make Consumer good C that would show up for sale around the world. Just in time inventory, it turned out, didn’t work very well when nothing arrived on time. Second, the Russian invasion of Ukraine has–or at least it should have–reminded us that global supply chains can resemble Whack-A-Mole.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. My one-hundredth-and second YouTube video “Strong hands vs. hot hands” went up today. Today I’m looking at a few stocks that exemplify what most experienced traders know: some hands are steady, and some are not. So when Nvidia announced this week that it expected to see supply chain issues (despite beating earnings and raising guidance), the stock fell. Similar things happened to chip-making equipment supplier Applied Materials and Albemarle, the lithium maker. I’m taking this opportunity to add some of these stocks into my portfolios. What about you?
