smh etf

Tech Stocks: What’s Hitting Semis?

smh semi stocks
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Semiconductor stocks have been weak of late after a recent Morgan Stanley downgrade and some negative data-points.

While the stock market is close to all-time highs the semiconductor chart (NYSEARCA:SMH) is struggling.

We pointed out semiconductor technicals being weak in early July and they have continued to under-perform.

Weak Action Last Week

While the rest of the stock market was going up on expected US-China trade negotiations, semiconductor stocks continued to get hit. Semiconductor stocks would be among the biggest beneficiaries to a trade truce. Seeing them fall is a negative action sign and needs to be noted.

Samsung Push-Outs, NAND and DRAM

Samsung pushing out equipment orders in NAND and DRAM have caused semi-equipment companies to plan for down sequential revenues in Q3.  Investors remember past cycles where that has spelled disaster.

We don’t think this is disaster this time. But with NAND pricing coming down we’ve been cautious on semi-equipment companies for some time to subscribers.

Samsung, though likely pushed out DRAM orders not because of falling prices but because of the difficulty in transitioning to the next technology node. That can ultimately bode well for DRAM suppliers as industry supply growth could fall below expectations supporting pricing.

DRAM spot pricing has also reported to come down. That can weigh on stocks until news reports otherwise. Companies like Micron (NASDAQ:MU) have been outpacing the spot market pricing but they don’t report earnings for another month to offset claims of spot price erosion.

As for NAND, Apple iPhone units being below expectations this year may have helped weigh on NAND prices. If Apple (NASDAQ:AAPL) can nail this next iPhone launch that can add some support to NAND prices.

Typical Seasonal Tech Stock Weakness

Seasonally this period of time has been difficult for tech stocks pretty much through September. Reports coming now report on the summer lull. The results of the Q3 ramp ahead of holiday don’t get reported until October which typically can benefit tech stocks.

Conclusion

The big hit is in semiconductors but there are many individual stories and non-semis that can look through the semi-equipment concerns. We’d also expect select semiconductor stocks to catch some strength later this year. But Morgan Stanley’s call came in a news air-pocket for ultimate impact. We don’t get any potential counter news flow until the broker conference circuit kicks off in September or the next round of earnings reports.

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Updated August 20, 2018, 6:09 PM EDT

Tech Stock Focus: Semiconductor Chart Shows Downside

semiconductor stock chart
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The semiconductor stock index SMH (NYSEARCA:SMH) has been in a downtrend. You’d think semiconductor stocks should have benefited from Intel’s (NASDAQ:INTC) strong pre-announcement. The decline is likely driven by trade war fears.

Tech Stock Focus: SMH ETF Support Level $96

The chart above shows that key action over the last year formed a line of support around $96.

The current downtrend of the SMH ETF looks like the index is headed down to support. Unless we get a settlement of this trade dispute we could still have further downside.

Atlanta Fed GDPNow Estimates Slow

The Atlanta Fed predictions for Q2 had been 4.7%. The just-released expectation is now 3.8%. The drop could be tied to trade war fears. Businesses could start to reassess their plans for the year.

Auto Key Driver For Tech

GM, in fact just said tariffs could “lead to a smaller GM.” Hyundai said something similar.

The longer this now-global trade dispute doesn’t get settled, more companies like GM could pull back.

The auto industry has been a key driver for semiconductor companies as tech content per vehicle has been increasing.

Semiconductor companies also have some of the highest exposures to China of our tech stock coverage. A drawn out fight can hit the SMH ETF.

In speaking to the companies we’d guess nobody’s seeing a slowdown yet. But as business leaders read the news daily someone might blink which could start a domino of slower orders.

Our Take

Until this trade war sees some resolution we’re concerned that the semiconductor ETF SMH might not see support until $96.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

Tech Stocks: Tough Next Few Days

You know we’ve been big bulls on Tech Stocks (NYSEARCA:SMH) (NYSEARCA:QQQ) (NYSEARCA:XLK) but we changed on Monday saying “Did Tech Change Today?”

We’ll talk about the next few days but first a reminder of our change on Monday,

“For our Buys, the stocks we like most, I want to step to the sidelines. It’s not easy but I want to wait for the dust to settle. We need to know if the US is going to cut off huge chunks of revenues for top tech companies or not. Are there bigger moves ahead or not.

We’ve had monster moves in our Buys if you’ve been following us. Scroll through our posts. This accelerated uncertainty is as good a reason as any to step aside after a monster move.

Markets don’t like uncertainty and it makes sense to see what’s in store.

…If we don’t get any export restrictions by earnings I want to build back on our favorite ideas for earnings reports. Until then I don’t want to be the one to bear the risk. An export ban, if any chance at all, is something different.”

That was what we said on Monday after being bullish for a long while.

Export Controls Are Risk

Yesterday and Today the media felt Trump was easing up on trade. We’ve been focused on “export controls” though which have been only moving ahead in legislation. That’s the risk to revenues and earnings for tech companies.

Here’s what The New York Times said on it today,

“The officials also said Mr. Trump will direct the heads of the Commerce Department and other federal agencies to review the nation’s existing system of export controls and recommend any needed changes. That could have a more significant effect on United States companies than restrictions on Chinese investment, since it would limit the ability of American companies to sell a range of products to China. The White House has targeted specific products that it wants to prevent China from dominating, including robotics, artificial intelligence and new energy vehicles.”

That’s the more serious of the laws but maybe until today, has had less focus.

The semiconductor ETF SMH was down all day potentially reflecting the greater exposure to export control risk.

The Next Few Days

Reports have come out that the White House will reveal its plans on Friday. Then on July 6 the first tariffs take effect. Unless we get a settlement between the US and China we’re staring down unknown or negative events plus a long weekend. A market that’s started a downtrend probably has more risk. Tech stocks nearer there highs and the center of the uncertainty get included in that risk.

Conclusion

We’re bullish on earnings season but want to watch out until we get closer or some clarity and settlement between the US and China on trade.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.