The impeachment investigation is getting an incredible amount of attention…which is no surprise. Let’s face it, it has only taken place three times in our history. (Actually, since speaker Pelosi hasn’t been a vote in the House, the impeachment process isn’t an official one, so this might not qualify yet. However, since there is an investigation, it’s still something everybody is suddenly focusing on.) However, we are a LONG way from it having an impact on the markets. We don’t know if this issue will gain the kind of traction it did under President Clinton…much less how much it did under Nixon. Besides, as we will touch-on in our weekend piece this weekend, we think the economy and markets have a bigger impact on the impeachment process…than the impeachment process has on the markets/economy.)
With this in mind, we’re going to talk about some different issues this morning. We’ll begin by talking about the chip stocks. Micron (MU) is trading down more than 5% this morning in pre-market trading after they reported earnings last night (and lowered their earnings guidance). On a technical basis, this will take MU below its trend-line from late June, but since that trend-line is only a few months old, it does not raise any serious warning flags on the stock.
However, the SMH semiconductor ETF has been bumping up against its all-time highs for three weeks now…and yet it has not been able to break above it in any meaningful way for the second time this year. Therefore, the concern is whether the group running out of gas once again…and if developments like MU’s earnings release will be something that will cause another sharp sell-off in the chip group. (The last two were -18% and -12% respectively.) Let’s face it, the hope by many of the tech bulls had been that MU’s earnings report would show that the fundamental back-drop for the semis had bottomed.
Therefore, we’ll continue to watch this key leadership group over the coming days and weeks. One stock we’ll be watching particularly closely is the darling of the chip stocks in 2019, AMD. From the December 24th lows to the July highs, the stock more than doubled. However, since then, it has fallen 14%. This has taken AMD below its trend-line from those December lows……Now we’ll be watching the August closing lows of $28. A break below that level would follow-up that drop below the trend-line with a key “lower-low.” Thus a move below $28 would raise my concerns about AMD…and the semis overall (and the entire tech group for that matter). Since the semis have been such a vitally important leadership group over the past year, the next significant move in the group should be critically important for the broad stock market as well. (First two charts below.)
Shifting gears, we’d also like to take a look at AMZN. AMZN made a “double-top” just above $2,000 (in September 2018 and July of this year)…and it is now very close to testing a couple of important support levels. Actually, it has already broken slightly below its 200 DMA…which had provided support for the stocks on several occasions in August. (That line could also be seen as the “neck-line” of a “head & shoulders” pattern. However, that is probably a stretch…given that the left armpit was below the 200 DMA.)
Anyway, we believe that the more important support levels are its trend-line from the early 2016 lows…and the June lows of $1,693. The stock closed last night within a whisker of its multi-year trend-line and 2.4% above its June lows. Therefore, if it declines in a material way any further, it’s going to be quite negative for the stock on a technical basis. In other words, if AMZN follows its “double-top” high…with a break below its multi-year trend-line…AND a important “lower-low”…it’s going to raise a big red flag on the stock.
As always, we have to see a break below these support levels before we can raise a red flag. However, given how the attacks on many of our FAANG stocks is a bi-partisan effort as we move into the 2020 election season…and the fact that this week’s Conference Board Consumer Confidence data suddenly turned lower…a compelling technical breakdown in AMZN going forward is not out of the question by any means. (Third & fourth charts attached below.)
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.