“V-Bottom” Frustrates “Buy the Dip” Crowd

Power Trading and Markets – February 16, 2020

“V-Bottom” Frustrates “Buy the Dip” Crowd

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The market continued to fluctuate between gains and losses late last week, as the news about the Coronavirus has resurfaced. I expect market volatility to persist. I would not chase the market at these levels and I am waiting for SPY to retest the $330 level. Based on the stock forecast toolbox model, SPY might reach a $340 level on the upside. I expect the market to trade between $330 and $340 levels.

I only expect shallow pullbacks starting next week. Please follow key support levels on iShares 20-yr Treasury Bond ETF (TLT) of $142, SPDR Gold Shares ETF (GLD) of $145, and U.S Dollar Index (DXY) at $98. As long as these support levels are intact, the market is prone to shallow pullbacks.  

I remain bullish on the pullbacks, as long as the SPY is above $330 level.  Aggressive short-term buyers should consider buying near $330.


 This week’s focus is back on the semiconductor sector where one chip or chip-equipment company after another is hitting the earnings ball out of the park – the latest being Nvidia Inc. (NVDA) – trading up 7.5% in Friday’s session after a blowout quarter citing strong demand from data centers. This was followed by Applied Materials (AMAT) which saw strong demand across all markets, which took its stock to new all-time highs.

There are some secular trends unfolding within the semi space that has investors very excited about the future prospects for sales and earnings. Everything from 5G, Internet of Things (IoT), big data, cloud computing, smartphone, autonomous driving, robotics, AI, augmented reality, virtual reality and advanced computing are all driving forces that have the sector in a powerful upside trend.

The most widely traded vehicle in the sector is the VanEck Vectors Semiconductors ETF (SMH) that includes all the heavyweight names that make for a great way to play the sector from a broad trading perspective. This is one of the only ETFs that trades in real tight correlation with the performance of the underlying components, which with the exception of Texas Instruments (TXN) are all excellent holdings.

 Looking at the technical picture, shares of SMH exploding out of a two-month trading range and showing very bullish momentum with all four moving averages turning sharply higher of late, implying more upside with minimal downside risk.

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 Within the top holdings of the SMH is Micron Technology (MU) which is pushing higher on a fresh analyst upgrade amid rapidly improving fundamentals and investor demand for exposure in the semiconductor space. UBS Analyst Timothy Arcuri took Micron to a Buy rating with a new $75 price target, 27% higher than where the stock currently trades at $59.50.

The base case cited by the analyst is that both the cyclical and structural a aspects to both Micron and the memory industry as a whole can outperform the S&P in that both are in a much stronger position for a sustained industry upswing for DRAM demand and pricing that should last deep into calendar 2021. It is also argued that Micron deserves a higher multiple given its improving competitive advantage compared to other integrated chip manufacturers.

Revenues for 2020 are forecast to be $20.5 bln and jump by 24% to $25.5 bln in 2021 while earnings of $2.33 per share in 2020 are forecast to spike by 141% to $5.63 per share. The company is building a $3 billion expansion to its existing Manassas, Virginia facility, adding 100,000 square feet of cleanroom space as a statement of conviction about where they think the immediate future is for memory chips.

The Seasonal Chart is bullish on MU for the next 20 and 30-day periods and chip stocks have a way of adding a lot of upside in a hurry when momentum picks up.

As is with the case with most big-cap tech stocks that are breaking out to the upside, there is typically strong follow-through when the least path of resistance is higher, and in the case of Micron shares, this should play out in textbook fashion.

The all-time high for MU was $94.50 back in June 2000 and the high price target on the Street at present is $100.

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Vlad’s Notes: consider buying near the "BUY" level with a "10 days prediction" higher than the close price. In our live trading room. I usually hold a position for 1-2 days and allocate no more than 5% of trading capital to any single trade.

I allocate less than 5% of my portfolio if I hold a position overnight. On average, less than 1% of the portfolio should be at risk if you hold a position less than one day. I personally enter a position at predicted LOW (BUY) price or yesterday's close price.  My stop loss is 1% and my target gain is 1% of a stock price. I target 75% accuracy using these signals.

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Within our Aggressive Power Trader trading list, trades are recommended in our Tradespoon Live Trading Room as well as having access to my Watch List.

YellowTunnel is purposed to deliver high-visibility sector strength where a cluster of leading stocks are identified, coinciding with what we call a “10-day prediction momentum trade”. When we recommend a stock, ETF, or related option strategy, our time horizon is same-day in-and-out and up to five days max, at which time in the majority of trades, would be closed out.

When looking to execute recommended trades, consider buying near the "BUY" level with a "10 days prediction" higher than the close price. In our Live Trading Room, I usually hold a position for 1-2 days and I usually allocate less than 5% of the portfolio if I hold a position overnight. On average, less than 1% of the portfolio should be allocated if you hold a position less than 1 day.

For the best results, I personally enter a position at the predicted LOW (BUY) price or yesterday's close price. My stop loss is 1% and my target gain is 1% of the stock price. I target 75% accuracy using these signals.