Tech Stocks

TSMC Trade War Comments Hint Ahead Of Earnings Season

TSMC’s founder’s comments may have given us a real-time read into the trade war impacts on current business.

We have been bulled up on Q2 tech stock earnings. Since doing the work on our companies though trade war shots could have spooked Q3 company ordering decisions which would change the strong potential Q2 trend.

We don’t think Q3 will be weak but we’re listening for any early evidence of any companies talking about what they’re seeing in Q3. Those Q3 changes can affect the stock prices and sentiment.

TSMC Has Helped Us In The Past

We’ve successfully used TSMC comments to give us conviction ahead of AMD (NASDAQ:AMD) and NVDIA’s (NASDAQ:NDVA) quarters last quarter.

TSMC was just out implying that they see no change in business from the trade war.

Yes they are worried about the risks of the trade war but if you listen carefully to what they said, we’d guess they are not seeing any weakness just yet.

TSMC founder Morris Chang said, “Currently, businesses are not yet actors in this reality show but they could be added into the casting anytime.”

That means to us, in Mr. Chang’s view business has not slowed because of the trade war yet.

He went on to say, “TSMC is still doing well but we need to be on alert.”

That implies to us they are not seeing orders pulled yet in Q3.

Conclusion

Earnings begin to report next week. We want to listen carefully if there’s been any trade war induced slowdown in the tech supply chain.

We’ve said previously that we think the accelerated pace of revenue growth in Q2 could soften any Q3 blow given the trends coming into this trade war were so strong.

On the one hand we’re early and would guess not much trade-war induced slowdown happened. On the other hand we want our ears on the train tracks listening for any change. That can help bias our positioning going into key earnings reports.

Mr. Chang’s “on alert” sounds right.

Hitting Tech Stock 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.

We’re about to hit our prime time, earnings season.

START FREE TRIAL

Read Reviews

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.

Trade war likely to usher world into chaos: China

The Global Times, often thought of as China’s state media outlet, asked on the trade war, “Is the world on the eve of chaos? It appears so.”

They also expected that the “tit-for-tat” moves could cause “domino effects” specifically citing ZTE’s US penalties and said “China should prepare for the worst.”

Interesting, the US also prepped markets this week with its own warnings. Commerce Secretary Wilbur Ross talked to financial asset risk by saying that there was “no level of the stock market that’s going to change policy.”

Micron’s China Injunction Tit-For-Tat For ZTE?

The China-warning report cited above was dated July 3rd came in tandem with the recent Micron news. It was reported yesterday that sales of Micron (NASDAQ:MU) semiconductor products would apparently be limited in China after losing a patent case.

In another Global Times report when speaking directly on ZTE they were quoted as saying, “we should prepare to strike back.”

And so through Micron they have.

The parallel messages of building trade war risk by the White House and the Government of China means investors should all take heed.

Two Monday’s ago we went from bullish to cautious on tech stocks based on the conflict.

Semiconductor Stock Downside 

Semiconductor stocks are among the most exposed to a trade war between the US and China.

We wrote on Sunday that the “semiconductor chart shows downside.” Combine that with the negative news of Micron and the rest of semiconductors could continue to see weakness.

Exactly where the ETF SMH (NYSEARCA:SMH) closed July 3rd represents important support. A closing break below that 100 level would likely mean more downside in semiconductor stocks.

That downside could get ticked as investors assess the potential of direct corporate earnings repurcussions as we saw with ZTE and we may have just seen with Micron.

SUBSCRIBE

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.

China Trade War Strikes Micron

We said a week ago on Monday to reduce China exposed tech stocks. Micron (NASDAQ:MU) is potentially the latest impacted by the US-China trade war.

News hit that they may lose their China business based on a patent lawsuit. China makes up 50% of Micron’s business and, if true, looks like a trade war incited decision.

Competitor to Micron UMC claimed today that Micron will no longer be able to sell multiple DRAM and NAND products in China. Micron denied they were served such an injunction.

China Blows Back

Since the US administration upped the tariff ante to $200B China didn’t answer directly. They did answer quietly in other ways when accepting Iran oil against President Trump’s calls. They may have also let their Yuan drop even though they said they planned not to.

This Micron move, if UMC’s statement is correct would be a direct blow back at the US hurting a key US semiconductor company.

China Front Runs Trump’s Export Restrictions

If the Micron ban is true China would have front ran Trump’s attempt to move legislation to restrict exports to China.  Micron could have been one of the companies at risk to have intellectual property stolen.  If this move is true, China would have accomplished the export ban first.

Hurts Tech

If true it shows how difficult a trade war with China can be given the potential dislocation of the supply chain.  Companies would have to find new suppliers and purchasers. It can disrupt costs and earnings for multiple quarters.

Drag Tech Stocks

If Micron confirms this news it will be negative for many other tech stocks with China exposure and specifically semiconductor companies.

Conclusion

We’d guess a decision in China’s courts against Micron, if true, would have been trade war related. If so we could have a taste of what’s to come. If true it would slice revenues from Micron and potentially other companies. Our call last Monday to reduce China exposed stocks helps avoid situations like this. Micron is down 5.5% on the news and if the news proves true we’d guess it and other tech stocks will be down further.

BEST TECH STOCK RESEARCH

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.

White House Stock Market Warning

US Commerce Secretary Wilbur Ross just said there’s no “level of the stock market that’s going to change policy.” Those are some very strong words. The White House is telling you to expect stock market downside which counters last week’s media reports that the administration backed off after seeing the market down.

CNBC reported more fun quotes from Secretary Ross today. He also said, “There will be some hiccups along the way.”

Hiccups? He knows. That’s not very bullish. We need to take heed.

We don’t remember the White House ever warning Wall Street for impending downside. Anybody remember that? That makes it tough to be bullish.

As you know we turned cautious on markets last Monday thanks to these trade issues. That was after being big tech bulls for a while. On Monday we said, “We’ve had monster moves in our Buys if you’ve been following us…. This accelerated uncertainty is a as good a reason as any to step aside.”

On Wednesday we expected a “tough next few days” for stocks specifically tech stocks. Tech stocks have huge exposure to China.

For now we see stocks in a technical downtrend over the last week or so and the macro news is confirming that downtrend.

We don’t have positive earnings news to save the day for about another two weeks so the trend looks down ahead.

Conclusion

When the White House flat out tells you watch out stock market I think it’s fair to take heed. It confirms our first cautious notes from last week after being bullish for a while.

SUBSCRIBE

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 Stock Focus: Semiconductor Chart Shows Downside

semiconductor stock chart
Source

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.

SUBSCRIBE

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 Step Into The Second Half

Tech stocks step into the second half with the first half just completed. We had been bullish that we’d come out of Q1 with good guidance. Q2 earnings reports should also see good guidance so we expect good reactions. The question is the macro.

Finger On The Trigger For Earnings Season

We had no clarity from President Trump on trade Friday as had been rumored.  We expect tech stock earnings season should show strong Q2 reports as well as strong guidance versus the Street for Q3. The combination should be good for tech stocks when we reach earnings in two weeks.

In The Meantime Macro 

What’s bothering us about macro right now is that the US administration’s call for “export controls” would hit revenue targets of key tech stocks. That makes macro trade policy relevant for tech stocks.

General Motors (NYSE:GM) just complained that tariffs would “lead to a smaller GM.”

Tariffs however only lead to raised prices and likely result in lower demand. Export controls, however would directly cut revenues stopping “industrial significant technology” from shipping at all. We need clarity on this progressing legislation.

Tech Stocks Up In First Half

As you know we’ve been bullish on tech stocks which have run nicely. Tech heavy ETFs like NASDAQ ETF QQQ, XLK and the Semi Index SMH are all up year-to-date.

The ETF SMH may be the most exposed to export controls since semiconductor companies have meaningful exposure to China. That’s the index to watch to understand trade sentiment.

The ETF SMH was down 3.7% on the news last week implying concern about the US’ new export control risk.

Conclusion

Earnings start in two weeks. We’re bullish for earnings but not bullish about the macro trade news just yet.  If we don’t get some trade truce ahead of earnings in two weeks we still most likely want to be exposed to our top ideas for earnings. We hope that the trade news doesn’t affect guidance but we’ll have to make that decision closer to earnings.

SUBSCRIBE

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.

Intel’s Guide Confirms Tech Boom

Intel (NASDAQ:INTC), along with some other news, had a positive earnings pre-announcement for Q2. They took their revenue target from $16.3B to $16.9B. Their EPS estimate moved up from $.85 to $.91.

Let’s see what that means for tech stocks overall.

Accelerating Revenues

In late April and early May, if you remember, we were calling for tech stocks to start hitting new highs. Stocks were much lower then. We said the same for FANG stocks in mid-April expecting new highs there too.

Since then the NASDAQ (NASDAQ:QQQ) and FANG have both recently broken out to new highs.

The core reason to our thesis for coming break-outs was that multiple major tech companies were seeing accelerating revenue growth.

Now Let’s See If Intel Confirms That Trend

Intel’s a pretty important tech player, right? Q2’s not even over and they had reason to announce their thoughts on the quarter yesterday.  Here’s their revenue trajectory based on their guide they gave yesterday.


2017 2017 2018 2018
Intel Q3 Q4 Q1 Q2



A E
Revs 16.1B 17.1B 16.1B 16.9B
YOY 2.4% 4.1% 8.6% 15%
2yr 11% 14% 17% 24%

Notice anything here? Not only is their one-year revenue growth accelerating from 2.4% to 15% in just a few quarters, their two-year growth rate is also accelerating.

That means this year’s growth rate is not simply benefiting from easier numbers from last year. The two-year means as we add up this year’s growth with last year’s same-quarter growth you have a legitimate acceleration in the numbers.  That’s bullish for tech in general.

Intel confirms our tech stock boom thesis. Accelerating revenues for tech should mean more new highs for the stocks.

Conclusion

A key stat for tech was confirmed yesterday. Intel’s early guide confirms the accelerating revenue growth story for for the biggies in tech for Q2. That revenue growth story was a key metric in helping us expect the current strength in tech stocks.

KNOW WHICH TECH STOCKS TO OWN

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 own QQQ.

Stock Market’s Allowed A Down Day?

The stock market’s been down this week and I’m here to say, that’s ok. Markets are allowed down days and even down weeks.

Let’s not lose sight that the NASDAQ, thanks to tech fundamentals has been breaking out to new high after new high.

Trade war fears need to be respected but we have a game-plan for that. Let’s review.

Down Days Are Ok

Market… Down days are ok and normal and apart of life. You’re good enough and you can do it. You’re fundamentals are getting better. You just have some macro headwinds but you’ll survive.

Jobs are strong, rates are low and revenues and earnings are accelerating.

But What Do I Do About A Trade War?

First, let’s see what happens. If countries keep raising the size of their tariff target lists then the market’s going to stair step down.

If not, then the market is going to likely trade back and forth until we get some other news to push it.  What news is that?  Earnings.

So unless we have worse figures bigger than the $200B threats, let’s hold the course.

What About Earnings?

Based on our work calling a ton of tech companies we’d guess that Q1’s acceleration can continue into Q2 and that the guides can be strong for Q3.

No company would know about any negative impact of a trade war, not yet.

So if we are right about tech companies there is good reason to believe the NASDAQ can keep marching higher. That should support the rest of the market.

SPY Line In The Sand

The news media is going to be tough sporting a ton of threatening headlines.

Source

Let’s draw a SPY line in the sand to keep things simple.

There are a few things on this chart.

First we drew some arrows where the S&P 500 ETF SPY (NYSEARCA:SPY) chart had some major action.

That line is 271.

Above that line, I think it’s easy to stay bullish. A close below that line would make me potentially more neutral. So we’ll let the market tell us what it wants to do.

As for the brown line in that chart, that’s the NASDAQ (NYSEARCA:QQQ). Wow right?  That is a beautiful uptrend.  We don’t want to mess with that uptrend. Let it work. We’ll use SPY’s 271 to decide on both but we want to give that beautiful uptrend as much chance to continue.  It can do it.

The stock market has ignored a lot of bad news until this week. But the market’s also allowed to have some down days and down weeks. It’s normal and it’s healthy.

Lastly, in the chart above we circled the last time the market had a weak close like it did today. It’s been a while. The market is allowed a weak close every once in a while.

Tech Fundamentals Strong

We’d remind you that FANG stocks and other major tech stocks are all seeing accelerated revenue growth.  Intel today confirmed that trend with an upside preannouncement. It’s good out there.

We speak to many companies each quarter and we’d guess this quarter can be similar to what Intel just announced.

Conclusion

The market is allowed down days. Fundamentals are very strong. It would be nicer if Trump and Xi make nice. In the meantime let’s use our 271 SPY line in the sand.

SUBSCRIBE: BEST TECH STOCKS

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 are only long QQQ of the stocks mentioned here.

So Far Trade War Touches Tech Less

So far a majority of the products listed by the US and China have been in the agriculture and industrial segments. Officially, the war hasn’t centered on tech. Not yet.

Another consideration is much of production for major tech companies happens outside the US and China.

While a trade war would raise prices and potentially slow end demand, so far, tech could get hit less.

US And China Target Ag And Industrial


The lists of goods targeted so far by both countries have mostly been outside of tech (here and here).


Semiconductor Supply And Demand Is Global

Source

China and North America make up about one-fourth of global production.

China and North America make up roughly under one-third of global demand.

It’s meaningful but there is the chance that companies can shift production to lower cost regions if a trade war were to break out.

Economy Strong

A trade war would raise prices on goods making it more difficult for consumers to buy. The risk is a trade war slows the economy.

That said the economy has been picking up steam. The Atlanta Fed has been expecting a faster Q2 for US GDP.

There’s the chance that a trade war would slow that acceleration but doesn’t necessarily mean we fall into a recession based on that underlying strength.

We’re Still In Negotiation Mode

Both sides (China and the US) are positioning but also racing to come to an agreement. A trade war would hurt everybody and nobody wants it. The louder we hear the crossfire the more it likely means they are desperate to negotiate.

Tech Accelerating

We’ve shown that revenues of major tech companies are accelerating (here and here). Based on our work we think that continues this quarter.

Capex spend by hyperscalers, which is a huge tech driver has also been accelerating.

The backdrop for tech is very strong so if the trade war is muted against tech or settled we think tech has some big upside.

Q2 Same Thing

We’re bullish.  Based on our work speaking to many companies we feel Q2 can continue to see revenue acceleration which would drive earnings leverage.

If correct you have a big fundamental reason holding up stocks against trade war scares.

SUBSCRIBE: BEST TECH STOCK BUYS

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 positions in the securities mentioned.