QQQ: The Downside Risks on the Nasdaq Seem Exaggerated

The performance of the Nasdaq now encompasses a higher degree of volatility as seen by the 5.5 to 9% corrections in the Invesco QQQ Trust (QQQ) which has now become the new normal in a macroeconomic environment where hawkish Fed hiking interest rates is seen as being unfavorable to high-valued and unprofitable tech stocks.

Source: Initial chart from Trading View

For investors, QQQ tracks the Nasdaq-100 Index which features Apple (APPL), Alphabet A (GOOGL), Alphabet C (GOOG), Microsoft (MSFT), NVIDIA (NVDA), Meta labs (FB), Amazon (AMZN), Tesla (TSLA), Adobe (ADBE) and PayPal (PYPL). These are the main holdings out of a total of 102.

Assessing the risks

There are certainly risks in 2022 in the context of being invested in tech equities, but, I would like to bring to the attention of investors that despite all the volatility, QQQ has gained 6%, and this shows that the market’s repositioning (amid the rotation from growth to value names) does not seem commensurate with the forthcoming pace at which interest rates will increase.

Exploring further, trades are no longer crowded as in 2021 as people look for income or other asset classes to diversify. However, this diversification away from tech seems not to have hit QQQ’s main holdings which constitute 52.73% of the portfolio. As per my observation, this has been the case from April through December this year when most of the market gains were just from AAPL, MSFT, NVDA, TSLA, and GOOGL.

Source: Ycharts.com

Given the fact that the rotation has lacked in breadth, I see the corrections in tech as a rather muted market reaction, and this also prompts me to discard fears that tech stocks will suffer in the same way as during the bursting of the Internet bubble back in 1999-2000. At that time, in the first phase of the bear market, the large-caps names were doing fine but a large percentage of Nasdaq’s other components crashed by more than 50%. Ultimately, all the components crashed.

However, that was a completely different Nasdaq with the top stocks of the time being Cisco (CSCO) followed by Microsoft then Intel (INTC), or from the networking, software and semiconductor sectors respectively. Today, it is more about social media, online advertisement, internet marketplaces, electric cars, the cloud, smartphones, and virtual reality. In short, tech is now fully integrated into all spheres of economic and social life compared to twenty-two years ago.

Considering the inflation factor

Moderating slightly, QQQ’s other holdings seem to be impacted as investors become more selective, putting more emphasis on quality (free-cash-flow, balance-sheet, economic moat, etc) and valuations. Still, here also, rising inflation, currently at above 7% compared to 3.75% in 1999-2000 could prove to be more difficult for value stocks like banks as their customers suffer from rising prices and are faced with the rising cost of doing business. For this matter, as shown in the chart below, Bank of America (BAC) and Berkshire (BRK.B) saw a more pronounced dip in their total return level in August 2008 than Apple or Microsoft when inflation was above 5%.

https://static.seekingalpha.com/uploads/2022/1/14/49663886-16421719831560977.png

Source: Ycharts.com

Industrials are also likely to suffer from soaring raw material and labor costs. As for tech, they should better withstand high inflation with their ability to make use of software, AI, and automation tools more rapidly than companies from other sectors of the economy. These tools enable them to reduce operating costs and better circumvent wage inflation. Examples are FinTechs like PayPal’s (one of QQQ’s current underperformers) ability to reduce money transfer fees for customers compared to traditional banks and companies making use of cloud-based collaboration instead of having to invest in costly infrastructure.

Tech should continue to outperform as digital transformation enablers

Furthermore, with relatively less dependency on physical interactions caused by variant-related uncertainty, tech stocks are less likely to see a reduction in profitability. Here, some will note that Apple’s revenue share from its App Store ecosystem is increasing more rapidly than for devices and Tesla is considered as an internet-of-cars company.

Historically, as shown in the chart below, big tech’s gross profit margins have either increased or remained constant during the last five years, which include 2021, a year characterized by rapidly rising inflation.

https://static.seekingalpha.com/uploads/2022/1/14/49663886-16421723117351067.png

Source: Ycharts.com

Thus, inflationary pressures grappling the economy as from 2022 is likely to put valuations on the backstage, with tech, especially the more profitable ones, likely to continue seeing positive returns. This said tech remains highly dependent on semiconductors, a sector that needs to be watched closely for some short term pain when some of the big names report earnings on the last week of January. Finally, looking at the performance of the Nasdaq in 2020 and 2021 when it gained 43.64% and 21.39% respectively, even a 10-12% gain in 2022 would put it in positive territory.

Disclosure: I am long Apple. This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.

Top Cryptocurrency Stocks for 2022

That’s why they’re the best, they’re the positive outliers relative to the rest of the market. These types of stocks have three traits: strong fundamentals, great technicals, and a history of Big Money activity in the shares. Outlier stocks see a lot of Big Money buying.

Oftentimes, that can be institutional activity. We’ll go over what that looks like in a bit. For MAPsignals, we believe that Big Money trading can alert you to the forward fundamental picture of a stock. In other words, Big Money moves markets.

I’ve spent my career in Big Money, primarily focused on stocks. If we can measure where demand is flowing for shares, that’s an edge worth tracking. We want the odds on our side when looking for the highest quality investments.

Well, can we use the same framework with crypto? Our data point to yes. Below are six-month charts of Bitcoin (BTC) and Ethereum (ETH), the two largest cryptocurrencies, with Big Money activity overlayed:

And here are multiyear charts:

Many investors are watching crypto with a close eye. The space has been walloped. And that means stocks whose businesses are exposed to crypto have suffered. But if the crypto pullback is over, those same stocks should bounce. Five stocks we think could benefit are TSLA, COIN, SQ, PYPL, & NVDA.

Tesla

Up first is Tesla, Inc. (TSLA), the electric vehicle company. In addition to vehicles, Tesla also owns crypto and accepts it as payment.

The stock has been on a pullback. Great companies on pullbacks are worthy of attention. Check out TSLA:

  • Year-to-date performance (+0.1%)
  • Historical Big Money signals

Just to show you what our Big Money signal looks like, have a look at the top buy signals Tesla has made the past few years. Blue bars are showing that TSLA was likely being bought by a Big Money player, according to MAPsignals.

When you see a lot of them, I call it the stairway to heaven:

Source: www.MAPsignals.com

But, what about fundamentals? As you can see, Tesla’s sales and earnings have grown at double-digit rates:

  • 3-year sales growth rate (+41.8%)
  • 3-year earnings growth rate (+33.3%)

Next up is Coinbase Global, Inc. (COIN), which is a crypto exchange.

Check out these technicals for COIN:

  • 1-month performance (-12.0%)
  • Historical Big Money signals

Coinbase

There’s been a price dip, but let’s look long-term. This is the Big Money action in COIN. Clearly the Big Money likes it:

Source: www.MAPsignals.com

Let’s look at fundamentals. As you can see, Coinbase has had huge revenue growth. I see that continuing in the years ahead:

  • 1-year sales growth rate = (+649.5%)
  • 3-year sales growth rate = (+139.3%)

Another crypto stock name for 2022 is Block Inc. (SQ), formerly Square, which is a payment processing company. It owns crypto, allows users to trade it, and changed its name to reflect its crypto-focused future.

Strong candidates for growth usually have Big Money buying the shares. Block has that. Also, the stock has been sold heavily of late:

  • 1-month performance (-20.3%)
  • Historical Big Money signals

Block

Below are the Big Money signals Block has made since 2015. That’s JUICE!

Source: www.MAPsignals.com

Now let’s look a bit closer. The growth is impressive, and I expect more of the same in the future:

  • 1-year sales growth rate = (+118.8%)
  • 1-year earnings growth rate = (+5.3%)

Number four on the list is payment processor PayPal Holdings Inc. (PYPL). It too allows users to trade crypto and is developing its own stablecoin. PYPL has been on a sell streak lately.

Here are the technicals important to me:

  • 1-month performance (-2.9%)
  • Historical Big Money signals

Paypal

Below are the Big Money signals for PYPL since 2015 – JUICE:

Source: www.MAPsignals.com

Let’s look under the hood. Despite recent price volatility, the fundamentals indicate PayPal has been growing nicely:

  • 3-year sales growth rate = (+18.0%)
  • 3-year earnings growth rate = (+36.1%)

Our last 2022 crypto stock candidate is computer hardware maker NVDIA (NVDA). The company’s graphics cards are popular gamers. They’re also popular with crypto miners, who use computers to solve complex problems to “mine” new crypto coins, since high-end graphics cards are part of the backbone of crypto mining operations.

NVDA has been on a sell streak lately. Check out these technicals:

  • 1-month performance (-9.3%)
  • Historical Big Money signals

Nvidia

NVDIA is a high-quality stock and has several Big Money buys (blue bars) since 2016:

Source: www.MAPsignals.com

Now look at the fundamentals. Sales and earnings have been rock-solid, with both growing at double-digit rates:

  • 3-year sales growth rate = (+22.2%)
  • 3-year earnings growth rate = (+18.0%)

The Bottom Line

TSLA, COIN, SQ, PYPL, & NVDA represent top crypto stocks for 2022. Strong fundamentals, future prospects, ample crypto exposure, and Big Money buy signals make these stocks worthy of extra attention, especially if crypto prices stage a turnaround.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds long positions in COIN & PYPL in managed accounts.

Investment Research Disclaimer

 

Advanced Micro Devices Completes Head and Shoulders Top

Advanced Micro Devices Inc. (AMD) completed a two-month head and shoulders topping pattern on Monday, raising odds for a breakdown that targets psychological support at 100. Accumulation, as measured by On Balance Volume (OBV), has dropped steadily since the stock carved the left shoulder in November, in another sign that shareholders are taking profits and moving back to the sidelines. Of course bulls could save the day, as they often do, but its best to prepare for a volatility surge as market participants react to the set-up.

Semiconductors Under Pressure

Chip stocks have had a tough time so far in 2022, with the PHLX Semiconductor Index dropping nearly 10% in five sessions into Monday’s midday low.   The decline is worse than it looks at first glance because 400-lb gorilla and perennial laggard Intel Corp. (INTC) has gained 7% so far this year, skewing broad sector averages. NVIDIA Corp. (NVDA) highlights typical damage to 2021’s biggest winners, dropping 13% before Monday’s bounce.

Advanced Micro Device’s 2022 outlook remains strong but fundamentals may not power the upside because growing worries about rising inflation could undermine buying interest. CEO Lisa Su outlined the bull case in a Monday interview, noting her expectations for a strong year, powered by new chips for laptops and commercial PCs. She also confirmed “very strong” demand that’s forced AMD to ramp up supply and chatted up new investments in artificial intelligence.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 19 ‘Buy’, 4 ‘Overweight’, 15 ‘Hold’, 1 ‘Underweight’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $115 to a Street-high $180 while the stock is set to open Tuesday’s session about $9 below the median $144 target. A short-term bounce looks likely, given this humble placement, but a rally above 155 is needed to negate the bearish pattern now in play.

Advanced Micro Devices cleared 20-year resistance in July 2020, entering a multi-legged advance that lost steam above 155 in November 2021. A breakout attempt three weeks later failed, carving the head of the H&S pattern, while the December bounce failed at the early November peak. The selloff since that time has reached the neckline in the mid-120s, with 20 to 25-point downside potential into the 100 level, which also marks support from the July breakout.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

For High-Growth Tech Lovers, the Trend Indicates That it is Time to Consider Value-Oriented ETFs

Also, subtracting 2% due to “positive sentiment” induced by the Santa Claus rally, it can be inferred that the index actually fell by more than 8%. At the same time, a look at the S&P 500 (in orange) which holds more than 28% of technology assets exhibits a more neutral position, while the Dow Jones Industrial average (in blue), up by 1.52% indicates that the more cyclical names are being prioritized by investors, as potential beneficiaries of the economic recovery.

https://static.seekingalpha.com/uploads/2022/1/9/49663886-16417501192287376.png

Source: Trading View

Going further in the past, the weakness in tech started from the second quarter of 2021 when it became evident that the Fed was adopting a more hawkish tone and bond yields were on the rise. However, the adverse market conditions for technology were masked by the gains from these six most popular stocks, namely, Tesla (TSLA), Apple (AAPL), Microsoft (MSFT), NVIDIA (NVDA), Meta Labs (FB), and Google (GOOGL). Now, with the Nasdaq bearing a P/E ratio of 28, tech valuations remain high compared to the broader market, and the weakness in richly-valued high-growth names in the technology sector should continue, perhaps in the same way as during the Internet bubble of 1999-2000.

Growth to value rotation

Now, moving away from high-growth tech names to lower-valued cyclical names reminds us that the “rotation from growth to value”, which some analysts were invoking in 2021, has gained momentum. For investors, rapidly growing tech stocks with their high R&D and sales expenses primarily focus on growth while value names are more conservative in spending and lay more emphasis on profitability.

To further verify whether the growth to value shift is really happening, I make a comparison between growth and value ETFs as per the chart below. In this case, the iShares Edge MSCI USA Value Factor ETF (VLUE) and the Vanguard Value ETF (VTV) are both up by 5.6% and 3.9% respectively, while the Schwab U.S. Large-Cap Growth ETF (SCHG) and the Technology Select Sector SPDR ETF (XLK) are down by more than 3% each. This one-month performance confirms that value is up, while growth/technology is down.

https://static.seekingalpha.com/uploads/2022/1/9/49663886-16417501193779671.png

Source: Trading View

Looking ahead, in view of the uncertainty associated with Covid variants, supply chain issues, and inflationary concerns in the first half of 2022, there is no guarantee that the current trend favoring value will continue, but, at the same time, we cannot remain insensible to the new market regime. Moreover, for those who have been used to investing in growth made relatively easy due to the momentum induced by the mighty Nasdaq, it may prove difficult to screen the market for high-quality value stocks with appropriate free-cash-flow, balance-sheet, and valuations metrics.

The value-oriented ETF rationale

Hence, it is precisely for these tech investors that investing in value-oriented ETFs where the fund managers select the best stocks, makes sense.

In this respect, VTV with an expense ratio of 0.04% and paying dividends at a yield of 2.15% holds mostly Financials (22%), Healthcare (18.5%), and Industrials (14%) stocks as part of total assets. Finally, for tech lovers, better performing VLUE, with 30.85% of IT exposure, and paying a 2.41% dividend yield at an expense ratio of 0.15% is a better choice.

Disclosure: I am long XLK.

 

Dwindling Nasdaq Is Still Encouraging Investors to Take Advantage of Weakened Prices

With higher rates, a tightening monetary policy, and soaring inflation, investors are somewhat reluctant to pursue tech stocks in the coming year.

The Nasdaq-Composite edged lower in the first week of trading, falling by 3.5% since the opening of the market on Monday (03/01).On average, the Dow Jones Industrial Average managed to climb by 0.29%. Investors saw the Nasdaq 100 futures dip by 0.3% in the first week of the new year. Overall, futures on American markets are experiencing a slump starting in 2022, as the index fell by 1.35%.

Even with the slight downturn of the market thus far, it hasn’t completely scared off all investors. Now, Wall Street analysts and experts are seeing how investors can still take advantage of popular tech stocks, allowing them to purchase stocks at lower prices while riding out the slump.

Current predictions indicate that some tech-heavy futures will perhaps bounce back in the coming months – with a few unexplored stocks that might turn out to be the big winners for 2022.

Unexplored Tech Stock to consider

BackLine

While other popular tech stocks are remaining on the cards, experts are seeing companies such as BackLine, and similar accounting services increase their revenues over the coming year.

BackLine saw revenue climb by 21% year-over-year in the third quarter in 2021. The company has experienced some downturn throughout the pandemic, and in the first quarter of 2021 – but has quickly regained traction.

A growing customer base has placed the company in a relatively comfortable position, with a positive chance for stocks to increase in value as the year continues. Indicators revealed that BackLine customers are still spending more than 8% on offered services and products. Making it an unexpected stock purchase that might see lucrative returns.

Teradyne

Teradyne was one of a few tech companies that saw their stocks soar while the Nasdaq edged lower in the first week of trading for 2022. The company that manufactures automatic test equipment peaked on Wednesday (05/01) with stocks climbing 0.16%.

Most manufacturers are struggling to keep up with increasing demand, as effects left by the pandemic in 2020 are still being felt almost two years later. Teradyne has remained somewhat resilient, with Samsung, Qualcomm, Intel, and IBM among the few of their high-profile partners.

Teradyne is now in a comfortable position, where investors are seeing stock prices starting as low as $166.38, climbing slowly. In the first week of January, investment banking giant Goldman Sachs named Teradyne as one of their favorite tech stocks for 2022.

After this announcement, smaller private investors are now eager to purchase Teradyne stocks, as the tech market has delivered mere returns over the last few days. Perhaps the coming year will make Teradyne one of the best tech stocks for newcomers and low-profile investors.

Nvidia

While chipmaker, Nvidia is on the watchlist for most investment bankers, big or small – stock prices have been moderately climbing, seeing a 1.51% increase on early Thursday morning (06/01), with a daily high of $282.11.

Nvidia is one of few multinational companies looking to embrace the introduction of the Metaverse while pushing new technological innovations alongside other major tech firms. The company has slowly been edging higher, regardless of current economic implementations and the Fed’s increasing interest rates in the first quarter of the year.

Overall, Nvidia has gained strong traction throughout most of 2021, tailing a positive start to the new year – as investors remained quite positive about returns on their investments.

Pressure is mounting on major corporations to deliver advanced products and services that will entice investors and consumers to better support future endeavors.

The Takeaway

While higher rates and inflation will make it difficult for many investors to keep current predictions, the slow kick-off for tech stocks has encouraged many to rather look towards lesser-known corporations for lucrative investments.

Outlook for the year to come in regards to tech stocks may have started on a challenging streak, but compared to 2021, we can expect some major players changing how investors view the market and keep a finger on the pulse of some upcoming tech names.

 

Sector Themes In Play In The Markets For 2022

Years like 2021 saw a solid broad-based performance in many stock market sectors. Relatively simple approaches such as Indexing and Sector Rotation did well. But with macro changes in play and many uncertainties for 2022, we may very well see broad indexes underperforming while individual sectors dominated by a few stocks really shine.

Dips will continue to be bought unless something significant changes. But let’s not forget that we’re long overdue for a substantial correction. Significant risk catalysts are:

  • Fed actions.
  • International conflicts (i.e., Russia and China).
  • Pandemic developments that are not currently known.

There’s always the risk of the unknown – the literal definition of a “Black Swan” event. We shouldn’t get too complacent, knowing that we may need to get defensive to protect capital suddenly. When it’s time to be defensive, let’s not forget that CASH IS A POSITION!

Sector theme DRIVERS FOR 2022

Many uncertainties about Covid and the lingering effects on the economy remain. Inflation has roared back to 30-year highs. Strong employment numbers and consumer spending are fueling significant growth in corporate earnings. We also have a shift in bias at the Fed on interest rates and quantitative easing. These are the “knowns” and are theoretically priced in.

For these reasons and more, we should expect more of a “Stockpicker’s Market” in 2022. Certain sectors will do well and weather corrections better than the broader markets.

Even short-term traders can gain an edge by paying attention to what sectors are strongest. Traders tend to benefit most from playing the strongest stocks in the strongest sectors for bullish trades and choosing the weakest stocks in weaker sectors for bearish trades. That “tailwind” can make a significant difference in results.

Let’s look at some sector themes and individual names to keep an eye on in 2022.

ECONOMIC NORMALIZATION

A long-anticipated return to a “normal” economy will continue to be a theme — we just don’t know if that will be Post-Covid or Co-Covid. Or when. Air travel, theme parks, hotels, cruise lines, etc., have all suffered in the persistent Pandemic. What does seem to be changing is the idea of a “new normal” where virus variants may be with us for years to come. We will adjust socially and economically to that for the foreseeable future. DAL, UAL, LUV, AAL are airlines to watch, and the JETS ETF may be a good way to play a general recovery in this sector.

5G INTERNET

The much-hyped rollout of 5G network technology had its share of setbacks and technology disappointments. But 2022 should see the 5G deployment start to take off as technical issues are worked out, and the promise of widespread coverage with transformational performance becomes real. In the background supplying the 5G infrastructure are AMD, QCOM, ADI, MRVL, AMT, XLNX, and KEYS. Along with infrastructure and testing companies, shares of major carriers T, TMUS, and VZ languished for much of the second half of 2021 and looked poised for recovery in the coming year.

ARTIFICIAL INTELLIGENCE

In all its various forms (including autonomous vehicles), AI will remain a developing trend. Big players in the space to watch include MSFT, AMAT, GOOGL, NVDA, AAPL, and QCOM.

EVs and AUTONOMOUS VEHICLES

Electric Vehicles (EVs) are nearing an inflection point where widespread adoption is poised to take off. Technology and cost competitiveness has improved where some EVs will reach price parity with their traditional internal combustion counterparts.

While there are many smaller players in the EV space, automotive stalwarts F, GM, and TM are investing very heavily. TSLA has been grabbing the headlines, but many others want to stake out their territory in the space, including whole tiers of manufacturers and infrastructure enablers like WKHS, XPEV, NKLA, and CHPT.

MATERIALS and MINING

Gold, silver, and related miners underperformed for much of 2021 and now look poised for a recovery year as inflation, and monetary concerns grow. GLD, SLV, GDX, GDXJ, SIL, SILJ look good as both longer and mid-term plays. Metals and miners may get hit initially with a significant downturn in stocks but could ultimately demonstrate their safe-haven potential.

Specific to the growth in EVs, battery technology, etc., copper, lithium, and related basic materials should see stronger demand ahead. FCX looks particularly interesting as a dual play on gold and copper. LIT may be a good ETF play on lithium battery technology.

SEMICONDUCTORS

The market for chips is primed for exponential growth. EV’s have about ten times the number of specialty semiconductors as conventional vehicles. AI, crypto, 5G, mobile devices, and ubiquitous computing should drive growth in the semiconductor sector for some time to come.

REAL ESTATE

Real Estate and Homebuilders should continue to do well while employment numbers remain strong and if interest rates don’t rise too quickly. The inventory shortage in most real estate markets will likely persist well into the new year.

Storage REITs like PSA, LSI, and CUBE have been big winners in the Covid economy and still have room to run.

SUMMARY

Many sectors still look bullish after gains in 2021. But there are “storm clouds” on the horizon, and we must not take future performance for granted.

Lastly, one of the simplest ways to assess how sectors are measuring up is to watch the charts for the S&P SPDR series sector ETFs and a few others. Here are some notable ones to watch:

https://www.thetechnicaltraders.com/wp-content/uploads/2021/12/Dec-31-article.png

These can give us a good starting place to look for leading stocks in winning sectors as the year unfolds.

Let’s remain vigilant for possible market corrections and may the wind be at our backs!

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If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to check it out, click here: TheTechnicalTraders.com.

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MANAMA Stocks Should Continue to Empower SPY, VOO and QQQ till 2024 and Beyond

These are Microsoft (MSFT), Apple (AAPL), NVDIA (NVDA), Amazon (AMZN), Meta Platforms (FB) and Alphabet (GOOG) which I have aggregated under the acronym of MANAMA. Three of the ETFs which own them are the SPDR S&P 500 Trust ETF (SPY), Invesco QQQ ETF (QQQ) and the Vanguard S&P 500 ETF (VOO).

https://static.seekingalpha.com/uploads/2021/12/30/49663886-16408833269688747.png

Source: Prepared by author

The funds hold these mega-cap tech stocks as part of their top holdings, with the exact percentage held out of total assets held varying and depending on the objectives of the individual fund managers. Looking at the last one-year period, the three have delivered performances of above 28%, with the SPY and VOO gaining 28.54% and 28.59% respectively, slightly outperforming QQQ at 28.31%. Now, the fact that SPY and VOO, despite holding companies in the non-tech sector like pharmaceuticals and financials have managed to deliver such gains normally associated with QQQ would tend to show that in addition to their individual portfolio specifications, they have also benefited from the “MANAMA factor”.

https://static.seekingalpha.com/uploads/2021/12/30/49663886-16408833273404047.png

Source: Trading View

For this matter, both SPY and VOO are passive ETFs with expense ratios of just 0.09% and 0.03% respectively, far below the tech-heavy QQQ’s 0.20%.

The case for technology

One certainty is that tech has been growing since man invented fire and tools, and will continue to grow as long as he inhabits the earth. Starting with Microsoft, its current CEO Satya Nadella has successfully transformed his company from a traditional software company to one whose revenues are based on the cloud, and this, despite embracing the SaaS (software as a service) model after Amazon. The latter, known primarily for its online marketplace, continues to grow at a frantic pace. After having been the first to market the commoditized cloud services since 2006, Jeff Bezos’ company now aims to provide private 5G services with its usual “as-a-service” approach as well as launch its own constellation of communications satellites.

Now, the market size for 5G and related services should grow from $53 billion in 2020 to $249 billion by 2026, whereas for cloud computing, it should reach  947 billion from 445 billion in 2021. This rapidly expanding market should also benefit Google, with its AI focus.

As for Facebook, its name change into Meta Labs marks a shift in its CEO’s vision of the future, namely from a social networking company to one which is increasingly oriented towards virtual reality. Also, knowing Mark Zuckerberg failed attempt to launch a cryptocurrency sometime back, it is highly probable that FB will most likely acquire one of these blockchain-powered metaverse projects like Sandbox or Decentraland where goods ranging from virtual land to digital art are being exchanged for millions of dollars.

As for Apple, with its smartphone and forthcoming augmented reality devices, it should play a key role in the transition from the metaverse to the physical world and vice versa.

Metaverse demand and huge addressable markets

Now, in order to build smartphones, 5G equipment, electric cars, or cloud, you need powerful chips, produced by the likes of NVIDIA. The company through its GPU-based processors has a niche position among gamers as well as Bitcoin miners. This is a company that has been very innovative in the type of chips it produces and is expected to benefit significantly from metaverse demands as evidenced by its share price surging higher as shown in green (in the chart below), with the start of the surge coinciding with Facebook’s change of name.

https://static.seekingalpha.com/uploads/2021/12/30/49663886-16408833275020514.png

Source: Trading View

In this respect, the global metaverse revenue opportunity could approach $800 billion in 2024 compared to about $500 billion in 2020, out of which $400 billion would be made of online games and the rest by opportunities in live entertainment and social media. Interestingly, one company which should benefit as people’s purchasing habits evolve into more “experiential events” is Amazon, which only saw only a 3.79% appreciation this year.

Valuations and key takeaways

Consequently, with addressable markets in their areas of operations expanding rapidly and big techs having the cash to make acquisitions to power on with growth, I see share prices continuing to rise well into 2024. As for valuations, I foresee a 25% upside for SPY, VOO, and QQQ by the end of next year, based on the forecast of analysts at Wedbush Securities, according to whom the NASDAQ will reach 19,000 by the end of 2022, on grounds that mega-caps benefiting from continued tech spending as there is more focus on digital platforms, both for work and entertainment purposes.

Finally, the first part of 2022 should be volatile for stocks in general due to inflationary pressures and this is likely to impact valuations, but I am positive on tech generally, more specifically on MANAMA’s stocks as they take on the task of converging our physical and virtual worlds through an evolution as to the way we interact socially, purchase goods, work and entertain ourselves.

 

ProShares to Launch New Metaverse ETF Tracking Industry Heavyweights Meta, Apple, and Nvidia

ProShares, an investment firm renowned for launching the Bitcoin Futures ETF in the U.S., has now set its sights on the fast-evolving Metaverse universe.

In a December 28 filing with the U.S. Securities and Exchange Commission (SEC), ProShares declared its intention to launch a new metaverse-focused ETF. Dubbed the ‘ProShares Metaverse Theme ETF,’ the product will focus on tracking the Solactive Metaverse Theme Index (SOMETAV).

The index reflects the performance of multiple public companies offering metaverse-related products and services. It features some top-weighted stocks such as Apple, Meta, and Nvidia.

SOMETAV also tracks the performance of companies operating in online gaming, the creative economy, and the manufacture of metaverse-related devices such as V.R. headsets.

The ETF prospectus from ProShares highlights the growing popularity of the metaverse, an online virtual world that has become a key buzzword in recent months.

Big Companies Are Jumping on the Metaverse Train

The rapidly evolving metaverse trend has attracted some big names over the past few months. In October, social media giant Facebook rebranded to Meta, citing its ambition to create a virtual environment offering gaming and NFT trading features.

More recently, several prominent asset managers have decided to capitalize on the booming metaverse sector, which analysts from Reports and Data estimate could hit $872 billion in 2028.  Last month, metaverse appetite hit new heights as two Canadian firms launched two ETF products based on the emerging virtual world on the same day.

Meanwhile, the Roundhill Ball Metaverse has enjoyed tremendous success with the launch of its ETF, drawing in a staggering $916M from investors since June. Proshares now looks set to become the latest entity to join the metaverse sector, assuming financial regulators green light their ETF filing.

Metaverse: The Next Big Tech Platform

Per a recent Bloomberg report, the metaverse industry has reached $2.2 billion in a few months and is estimated to become an $800B industry. Some analysts view the metaverse as the next big tech platform that could propel the crypto industry to new heights.

The metaverse creates an online 3-D virtual environment that merges virtual, augmented, and physical realities into one immersive platform. The emerging world promises to transform virtual social experiences, e-commerce, gaming, NFT trading, and much more.

One expert points to recent developments in the metaverse universe as a sign that the sector is well primed to evolve and grow. Todd Rosenbluth, the director of ETF research at CFRA, told Bloomberg:

“I don’t know if the Metaverse theme has legs, but investors believe in it. Given the success of the ETF META, we are likely to see more products come to market that offer a unique twist on this long-term theme.”

META: Specifically for Metaverse Exposure but Not Yet Convincing

After Mark Zuckerberg renamed Facebook to Meta Platforms (FB), the metaverse has suddenly become a hot topic with search interest on Google Trends peaking at a value of 100, signifying immense popularity. However, there is currently no universally accepted definition of the metaverse apart from some key words like “virtual reality”, or “advanced Internet”. Learning from Blockchain’s world where there are already metaverse projects like Sandbox where land can be exchanged against payments of millions of dollars, it could be defined as a virtual universe with a functional economy.

Of course, this definition is not straightforward and to be frank, no one knows exactly what shape the metaverse will take. But, for investors willing to invest hard-earned money in ETFs like the Roundhill Ball Metaverse ETF (META), it is important to understand which sectors are most likely to benefit. Some use cases are already being proposed such as attending a virtual concert, taking an online trip or creating digital art in the form of blockchain-powered NFTs or Nun Fungible Tokens.

Now, these applications will require a lot of computing power due to increased utilization of artificial intelligence and augmented reality (“AR”). At the same time, for communication purposes, there will be requirement for next generation Wi-Fi and 5G. Roundhill Investments does list some sectors like Compute, Networking, Virtual platforms, Interchange standards, etc from where they choose companies to be included in their fund, but for illustration purposes, I provide a chart which I recently used it in an article on VanEck Semiconductor ETF (SMH).

Description: https://responsive.fxempire.com/v7/_fxempire_/2021/12/word-image-274.png?func=cover&q=70&width=436

Source: Chart prepared by author using data from IEEE Spectrum and augmented to highlight metaverse demand

This chart basically shows semiconductor revenues per sector (with most coming from computing at 34.5%), but, since I have highlighted the technologies needed to build the metaverse, I use it to explore how META’s holdings fit the “meta” investment rationale.

The META rationale

First, META tracks the Ball Metaverse Index, the first index designed to track the performance of the metaverse.

Second, the ETF’s main holding is NVDIA (NVDA) at 8.34% of total assets, also happens to constitute a significant chunk of SMH’s basket. Now, as a designer of graphics processing units for the gaming and Bitcoin markets, this chip play whose products are vital for computing should be one of the main beneficiaries as a building block for everyone’s “virtual space”. Additionally, NVDIA is a system-on-a-chip unit’s provider for the mobile computing and the automotive industry.

Third, there is FB itself, and with more than 2.9 billion users as at the third quarter of 2021, and its success as a highly addictive social networking brand, there is no doubt that it will profoundly change our lives by rendering more virtual than ever, helped by a Covid-induced restriction in physical interactions.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-16405745860315373.png

Source: RoundHill Investments

As for software plays like Microsoft (MSFT), Autodesk (ADSK), Unity Software (U), the metaverse is already proving to be a game-changer for working from home due to Covid. Continuing along the same thought process, instead of seeing their colleagues on a video call screen, employees could join them in a virtual office. Here, one of the main benefits of the metaverse is believed to be “presence,” meaning the feeling of physically engaging places and characters instead of looking at them through a laptop or smartphone screen.

Coming to Apple (AAPL), it has one of the world’s largest AR platforms with hundreds of millions of AR‑enabled devices, as well as thousands of related apps on the App Store. Now, one of the essential building blocks of the metaverse is interoperability whereby users must be able to move throughout the metaverse, while effortlessly make the transition to the physical world. For this purpose, they need AR devices which are supported by Apple’s iPhones. There is also an analyst forecasting that Apple’s “mixed reality headset will come out in the late 2022 or early 2023”, with the Apple Glasses to follow in 2025.

Apple should also benefit through its gaming division just like Roblox (RBLX), an online game platform which allows users to play games created by other users. In a metaverse scenario, one can envisage players retaining their avatar while hopping from one game to another or even a virtual shop for purchasing purposes, regardless of the brand of the user’s device.

After painting an enthralling picture of META, I now address some pain points.

META’s shortcomings

Since the concept of metaverse is relatively new, there will be many use cases that will arise in the future, but the space is also likely to be under intense regulatory scrutiny as lawmakers become wary of the power of big techs at extending their control on our social lives to a further degree through virtual reality. Governments may for example restrict the number of hours we can spend in the metaverse just like China is restraining the number of hours children can play games. Furthermore, Apple with its IOS operating system is only a part of the global smartphone ecosystem and it will have to be a metaverse which also encapsulates the Android operating system by Google (GOOG) with its brand of AR. META certainly includes the Android play, but only at a paltry 1.71% of holdings.

Pursuing further, META does include pioneers in content, commerce, and social for the metaverse, such as Sea (SE), Amazon (AMZN) and Snap (SNAP), and I also noted that it includes web infrastructure companies like CloudFlare (NET). On the other hand, I noted the absence of wireless plays from its portfolio. Also, the fund managers do not mention Industrial 4.0 applications, namely 3D printing which is crucial to allow transition from the virtual to the physical world.

Looking for further support from the share performance side, despite all these hot talks about the metaverse and META having already crossed the $900 million in total assets under management within six months, it managed to produce a meager 2.59% gain during this time. This is dwarfed by SMH or even the Technology Select SPDR ETF (XLK), with both these two funds producing above 17% gains in the same time period.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-16405745860053453.png

Source: tradingview.com

This calls for a dose of realism.

Conclusion

There is no doubt that META is an innovative ETF with its index consisting of a tiered weight portfolio of globally-listed companies who are actively involved in the metaverse, but this whole concept is still new and rapidly evolving. I also like the fact that Roundhill Investments have also included companies like Block (SQ) and Electronics Art (EA), thus showing their perfect understanding of the Blockchain side of things.

Still, I am not convinced as to the percentage of asset held for each stock. Now, as an actively managed fund charging 0.75% in fees, the portfolio is likely to see rapid changes, but at this stage, it is preferable to wait. Finally, those who want early metaverse exposure, both SMH and XLK can be considered as proxy ETFs for this purpose, and come at lower expense ratios of 0.35% and 0.12% respectively.

Disclosure: I am long XLK.

NUGO: Growth Has a New ETF

I came across the Nuveen Growth Opportunities ETF (NYSEARCA:NUGO) while reading a report by ETFGI, an independent research and consulting provider providing insights on the entire global industry of ETFs and ETPs listed globally. Also, out of the top 10 most active funds by net new assets, NUGO, which had been incepted only on September 27, gathered $1.63 billion, representing the largest individual net inflow. It outperformed many well-established names like the SPDR Blackstone/GSO Senior Loan ETF (SRLN) with inflows of only $562.16, coming at second place.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-16405368201872425.png

Source: Table prepared with data from etfgi.com

Interestingly, NUGO also beat the newly incepted ProShares Bitcoin Strategy ETF (BITO) which garnered a lot of media attention lately, and, tellingly, the above figures predate the volatility period engulfing crypto-currencies, signifying that they were benefiting from relatively higher inflows than currently.

The reason for NUGO’s higher inflows

Investigating further as to why NUGO collected as much as 34.5% (1,632/4,731) of the top-ten list of money inflows, the main reason was Nuveen’s parent company, TIAA moving funds from the “$13.7 billion” TIAA-CREF Large-Cap Growth Index fund to NUGO. This strategic re-allocation of assets to NUGO reflects Nuveen’s outlook on areas of opportunity in global equities and is aimed at improving risk-adjusted returns and enhancing retirement outcomes for investors.

Taking a bird’s eye view, EFGI’s report also mentioned that actively managed funds in these two investment vehicles (ETFs and ETPs) brought net inflows of $63.72 billion from the start of the year to November 2021, compared to only $33.06 billion for the same period in 2020. This represents nearly a 100% increase.

Now, these actively managed funds generally carry a higher expense ratio or the fees charged by the fund managers compared to more passively managed funds like for example, the SPDR S&P 500 ETF (SPY). My reason for considering SPY is that it shares some common holdings with NUGO like Microsoft (MSFT), Apple (AAPL), Tesla (TSLA), and Meta Platforms (FB) as shown in the table below with SPY to the right.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-1640536820367116.png

Source: Table prepared from nuveen.com and ssga.com.

Coming to the expense ratio, as an active fund implying more work to rebalance the portfolio, NUGO carries an expense ratio of 0.55% compared to only 0.09% for SPY as a passive ETF. The latter comprises 505 holdings with an AUM of $442.6 billion, a huge amount when compared to NUGO’s total net assets of only $3.3 billion. Also, SPY comes with a 1.22% dividend yield whereas NUGO has not announced any distributions yet.

Looking at NUGO’s performance and risks

Still, for growth-oriented investors who pay relatively less attention to quarterly dividends, two key factors remain performance and risks. For this purpose, I analyzed the three-month performance of SPY and NUGO and found that the latter lived up to “growth” wording in its name by delivering better performance, at 7.76% compared to 7.38% for the SPDR ETF. Now, some may affirm that this 0.38% underperformance is not much given SPY’s much lower fees.

However, as seen by NUGO’s chart in orange below, it delivered intermediary performances of up to 11%-12% on two occasions in November whereas SPY was mostly stuck around the 7% mark. More importantly, this performance has been delivered at a lower degree of volatility with the orange chart not descending below SPY’s green chart during abrupt market fluctuations as was the case in mid-November and the beginning of December.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-16405368204352078.png

Source: tradingview

This is explained by the fact that NUGO charges higher fees and seeks long-term capital appreciation through a concentrated growth portfolio primarily investing in U.S. stocks with market capitalizations of at least $1 billion. The investment team also looks for metrics like attractive earnings growth, strong relative valuation, attractive cash flows, and significant long-term returns.

Furthermore, unlike traditional ETFs NUGO makes use of a “proxy portfolio”, instead of publishing its portfolio holdings on a daily basis. Instead, it discloses the daily holdings of a portfolio transparency substitute (which the fund managers refer to as the “Proxy Portfolio”). This is designed to reflect the economic exposure and risk characteristics of the actual portfolio on any given trading day, allows for the efficient trading of Fund shares, and shields the identity of the Fund’s full daily portfolio holdings.

Conclusion

Looking ahead, the volatility grappling the market is likely to continue in the first quarter of 2022 due to inflationary pressures becoming more evident. To this end, one of NUGO’s constituents, payment processor MasterCard (MA) has taken a hit recently on concerns of rising COVID cases causing a dent in travel and related services. This is due to people tending to swipe their cards more often when changing destinations, thus generating transaction income for MasterCard. Now, the fact that many flights have been canceled on both sides of the Atlantic as Omicron spreads rapidly means less transaction revenue.

Still, I see the exposure to semiconductor names like NVIDIA (NVDA) to be a huge positive for NUGO due to the usage of chips in everything from datacenters, solar panels, electric vehicles, 5G, and crypto mining activities. Along the same lines, that 12% exposure to Microsoft (MSFT), on which most Wall Street analysts are very bullish and forecasting a 10% upside is another positive for the Nuveen ETF which should make it to the $29-30 level by the third quarter of 2022 as inflation fears subside gradually. Finally, I am also bullish because of the massive reallocation of assets being directed towards NUGO from Nuveen’s parent company I evoked earlier.

 

SMH: Portfolio Rebalancing Is a Positive to Navigate Uncertainty While Metaverse Demand Materializes

The reason is simply that required technologies, be it augmented reality (“AR”), AI, 5G, or blockchain, all require the utilization of semiconductors. The pie chart below shows the relative revenue per sector, with Computing and Wireless with a combined portion of more than 60% seen as the main beneficiaries of metaverse-related investments.

Source: Chart prepared by author to highlight metaverse demand using data from IEEE Spectrum

For this purpose, the VanEck Semiconductor ETF (NASDAQ:SMH) provides exposure to a portfolio of semiconductor stocks ranging from the equipment makers like Applied Materials (NASDAQ:AMAT) to designers of graphics processing units like NVIDIA (NASDAQ: NVDA) who are fabless, or without foundries where the chip are manufactured. It also includes the world’s largest producer, Taiwan Semiconductor Manufacturing (TSM), which, according to the Wall Street Journal planned to raise prices by 10% to 20% back in August depending on the type of chips.

This is due to the supply crunch not only implying that chips have become unavailable, but more expensive too. The increases, expected to be applied towards the end of the year or from 2022 will also impact large customers, marking the end of discounts applied on big orders. The Taiwanese company also revealed that it faced a steep rise in the cost of raw materials and has to incur a three-year $100 billion investment plan aimed at increasing production in view of current shortages and developing chips.

Now, a change in the costs of raw materials in an industry already impacted by supply imbalance can have unforeseen effects on the price of finished goods, in the form of everything from consumer electronics, smartphones, Bitcoin mining equipment, cars, etc. Added to these are inflationary concerns not auguring well for next year. It is precisely here that portfolio rebalancing as effected by VanEck, SMH’s fund manager becomes handy.

In this case, with 25 holdings, SMH is an actively managed fund carrying an expense ratio of 0.35% and tracking the performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which provides exposure to semiconductor production and equipment. As for the rebalancing act, I noticed a crucial change between the holdings as of July 31 and December this year. The changes pertain to the percentage of assets for TSMC which has been reduced from 13.62% as shown in the table to the left to 9.89% (right-side table). This constitutes a significant reduction and is not only appropriate in an environment characterized by increasing geopolitical tensions between the U.S. and China but also to navigate short-term turbulence in the industry.

https://static.seekingalpha.com/uploads/2021/12/23/49663886-1640312564473821.png

Source: Tables built with data from vaneck.com

Conversely, this reduction in TSMC’s assets has resulted in the portfolio being relatively more exposed to NVidia, thereby benefiting SMH’s price performance from the end of October (blue chart below). Now, whether its GPU-based computing power is produced for gaming or for crypto mining, the company should benefit from more sales in 2022, as long as it is able to source raw materials in a profitable way. Still, in the event that it is not able to do so, SMH as an ETF provides for investment diversification by encapsulating other plays in the chip ecosystem.

Another key player, Advanced Micro Devices (NASDAQ:AMD) could lessen chip supply woes by outsourcing some production to other foundries like Samsung Electronics (OTCPK:SSNLF), which is investing heavily in its foundry business in a bid to win more clients. Here, I also like VanEck cautiously increasing exposure to Intel (NASDAQ:INTC), from 4.66% to 5.14%, in light of the latter investing $20 billion to set up two plants in Arizona.

Description: https://static.seekingalpha.com/uploads/2021/12/23/49663886-164027899237196.png

Source: Table prepared by author from data in finance.yahoo.com

Furthermore, as seen by the dotted blue line, the VanEck’s fund is on an upwards trajectory and should reasonably cross the $325 level in the first quarter of 2022, with this forecast supported by data from the Worldwide Semiconductor Trading Statistics which predicts that the market is expected to increase by 25.6% in 2021, and continue to grow by 8.8% in 2022. This prediction does not take into consideration chip requirements to build augmented reality around Facebook’s social media platform, Microsoft’s (NASDAQ:MSFT) work-oriented “metaspaces”, and blockchain-powered metaverses like Decentraland, which require enormous computing power for millions of digital coins to be mined (produced) and where virtual plots of land are priced at millions of dollars.

Pursuing on a cautionary note, investors should beware of short term volatility, especially in the first week of January 2022 when the Semiconductor Industry Association (“SIA”) which represents a large chunk of the U.S and foreign chip firms covering all regions of the world will reveal sales figures for the month of November 2021. In this case, any global or even major regional shortcomings may cause a dip in SMH’s, in contrast to the more than 5% surge on December 6, when the SIA announced upbeat news for the month of October.

Finally, with fewer holdings compared to the SPDR S&P Semiconductor ETF (XSD) but bearing the same expense ratio, SMH carries more concentration risks, but, despite all the volatility grappling the stock market in 2021, it has outperformed its peer by 2.38% during the last year. Consequently, looking forward to 2022, with a higher dose of market volatility to be potentially induced by factors like more intensive “metatalks”, geopolitics, Omicron spread, and regulatory scrutiny impacting cryptocurrency like Bitcoin, SMH is a better choice for the longer term.

 

These 5 Stocks Will Make Or Break Nasdaq 100 – Price Volume Analysis on AAPL, MSFT, AMZN, TSLA, NVDA

There is little damage in Nasdaq 100 (NDX) index despite the number of stocks above 200-Day Average is only at 58% as of 16 Dec 2021, as shown below:

This is not a healthy sign you would like to see for the stock market breadth in a bull market. There was a divergence between Nasdaq 100 and the market breadth as shown in the green and red arrow above in 2018 and 2020. As NDX made a higher high, the market breadth headed to lower high suggested that there were lesser stocks participated in the uptrend. A market selloff came subsequently.

Now, there is a divergence between Nasdaq 100 and the market breadth again, which is similar to 2018’s based on the chart above. Nasdaq 100 is at a vulnerable position, which could be easily hit by a market correction should these 5 giant stocks – Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Tesla (TSLA), Nvidia (NVDA) drop further. It is important to analyze these stocks with price volume analysis as the weightage of these 5 stocks account for 40% of Nasdaq 100. So, they could easily make or break Nasdaq 100. Refer to the YouTube video to find out how to apply price volume analysis for detailed market update.

Price Volume Analysis on AAPL

As shown in the chart above, Apple (AAPL) broke out on 17 Nov 2021 from the immediate downtrend resistance line and the localized range with increasing volume. Despite having a reaction at the up-sloping range, the magnitude was shallow and subsequently AAPL went into a climatic run with overbought condition and peaked at 180.

A change of character bar with spike of supply showed up on 13 Dec, which was the largest bearish bar since the breakout from Nov, stopping the uptrend for now. A short-term bearish scenario is expected in AAPL. A break below 170 could trigger more selling ahead and to test the support zone near 160.

Price Volume Analysis on MSFT

Microsoft (MSFT) peaked on 22 Nov with a change of character bar followed by a pullback to 320. So far it is consolidating within an apex formation. For a bullish scenario with supply absorption, MSFT is expected to have contraction of volatility together with decreasing volume. Yet, the volatility and the volume are still high in general, which could be an indication of a bearish bias. A break below 320 could test lower support near 300 followed by 280.

Price Volume Analysis on AMZN

Amazon (AMZN) has been consolidating within a trading range between 2870-3770 since Sep 2020 after a change of character. Supply has been decreasing within the trading range, which is an encouraging sign for an accumulation bias.

The recent pullback in Nov accompanied by slight increasing of supply and so far, is not yet threatening. Should further weakness triggered by the broad market, AMZN could test support at 3200 followed by 2870. Directional bias is neutral for AMZN since it is still within a trading range.

Price Volume Analysis on TSLA

Tesla (TSLA) had a parabolic run after broke out the resistance on 21 Oct. A change of character bar with spike of supply has shown up on 9 Nov, which stopped the uptrend and turned TSLA into a trading range between 1000 – 1200.

Recently, TSLA broke below the psychological support at 1000 with increasing supply hence formed a sign of weakness followed by inability to rally up, suggested more weakness ahead to test the support area 800-900.

Price Volume Analysis on NVDA

Nvidia (NVDA) had a climatic run up with a buying climax formed on 4 Nov with spike of stopping volume. The uptrend was stopped and a trading range was formed between 320-280. The up thrust (false breakout) from 22 Nov -1 Dec came with increasing of supply suggested selling into strength.

The recent pullback broke below the support at 280 followed by a rally after FOMC announcement on 15 Dec, which hit only ½ of the trading range and a reversal bar showed up yesterday with increasing of supply suggested more weakness ahead. A break below the swing low at 272.5 could trigger more selling to test lower support area 200-220.

Bearish bias is formed in 4 out of 5 of these heavyweight stocks while AMZN is the only one with neutral stance based on the price volume analysis. Should they drop further as per the analysis above, Nasdaq 100 (NDX) is likely to experience market weakness ahead test 14500-15000 support area. I will be discussing more on the tactics to deal with the current market condition in my weekly live webinar on Sunday. Click here to visit TradePrecise.com to get more market insights straight to your inbox for free.

 

Nvidia’s Shares Tank After Analyst Said $40 billion Arm Acquisition Might Not Happen

Nvidia is one of the leading semiconductor manufacturers in the world, and it has been pursuing a deal to acquire Arm for a while now. Analysts have now weighed in on the saga as it continues to drag on.

Arm Acquisition is Highly Unlikely to go Through

Gartner semiconductor analyst Alan Priestley has revealed that it is highly unlikely for Nvidia’s deal to acquire U.K. chip designer Arm to go through. Nvidia was set to acquire Arm for $40 billion, but the deal has been in doubt for a while now.

The deal is currently facing numerous regulatory probes around the world. The analyst said there are regulatory concerns in the United States, China, the European Union and the United Kingdom. “I believe it’s highly unlikely it will go through,” Priestley told CNBC.

The deal was expected to be completed by March 2022, but Nvidia’s CEO Jansen Huang said it might be longer than that due to the current regulatory concerns. Arm is the world’s leading chip manufacturer. The company’s energy-efficient chip designs are used in 95% of the world’s smartphones and 95% of the chips designed in China.

Japan’s SoftBank bought the company in2016 for $32 billion. Arm licenses its chip designs to hundreds of companies who use them to manufacture their own semiconductors. Regulatory agencies are concerned that Nvidia acquiring Arm could restrict the company’s “neutral” semiconductor designs. It could also result in higher prices, fewer choices and lower innovation in the chip sector.

NVDA Down by Over 4%

The shares of Nvidia dipped by more than 4% after the analyst pointed out that the deal was unlikely to go through. At the close of the market yesterday, NVDA was trading at $307.06 per share.

NVDA’s technical indicators remain strong. Source: FXEMPIRE

Despite the recent dip, NVDA’s stock is bullish following its excellent performance in recent weeks. The MACD is above the neutral line, while the RSI of 57 shows that it is heading into the overbought region.

Year-to-date, NVDA’s value has gone up by more than 135%, making it one of the top performers in the semiconductor sector. The stock price could still rally higher before the end of the year as NVDA has momentum on its side.

Samsung to Spend $17 Billion on a New Chip Plant in Texas

Tech giant Samsung has concluded plans to build a semiconductor factory in Texas over the next few years.

Samsung’s New Chip Plant Will be in Taylor

South Korean tech conglomerate, Samsung, has announced earlier today that it will build a semiconductor factory in Taylor, near Austin, Texas. The plant will be built over the next three years as Samsung looks to increase its effort in manufacturing chips and to address the current global chip shortage.

The company announced that the plant would be a 5 square meter facility, and it will aim to boost the production of advanced logic semiconductors, used mostly in smartphones and computers. This latest development doesn’t come as a surprise as Samsung, like other major chip manufacturers, needs to boost its capacity.

There is currently a global chip shortage, which has affected numerous industries, including smartphones, computers, automobiles and more. Samsung said work is expected to commence in the first half of 2022, and it intends to start operating by the second half of 2024.

The $17 billion allocated to the plant is Samsung’s largest investment in the United States to date. The amount includes buildings, property improvements, machinery and equipment. Samsung has been planning this investment for the past few months.

Samsung Continues to Expand in the United States

The South Korean tech giant has been operating in the United States since 1978 and currently employs more than 20,000 people in the country. Its latest investment brings its total investment in the United States to more than $47 billion, the company added.

In addition to Samsung, other leading semiconductor manufacturers, including Intel, Nvidia, Qualcomm and AMD, could boost their chip production capacity over the coming years after President Joe Biden said earlier this year that domestic semiconductor manufacturing is a priority for his administration.

Kinam Kim, vice chairman and CEO of the Samsung Electronics Device Solutions Division, pointed out that the company is optimistic that the new facility will help Samsung to better serve the needs of its customers and boost the global semiconductor supply chain.

S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks

For in-depth technical analysis of various stocks and a recap of today’s Stock Trading Alert we encourage you to watch today’s video.

The S&P 500 index lost 0.14% on Friday, Nov. 19, as it extended its short-term consolidation along the 4,700 level. The broad stock market went sideways despite record-breaking rallies in large tech stocks like AAPL, MSFT and NVDA. It still looks like a short-term topping pattern, as the S&P 500 index keeps bouncing from the Nov. 5 record high of 4,718.50.

The nearest important support level remains at 4,630-4,650 and the next support level is at 4,600. On the other hand, the resistance level is at 4,700-4,720. The S&P 500 continues to trade along the 4,700 level, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Nasdaq Reached the New Record High

Let’s take a look at the Nasdaq 100 chart. The technology index reached the new record high of 16,625.86 on Friday, led by megacap tech stock rallies. It accelerated above its short-term upward trend line after breaking above the resistance level of 16,400 on Thursday. There have been no confirmed negative signals so far. However, we can see some short-term overbought conditions.

Apple and Microsoft at New Record Highs

Let’s take a look at the two biggest stocks in the S&P 500 index, AAPL and MSFT. Apple accelerated its uptrend after breaking above the resistance level of around $152-154. It reached the new record high on Friday at $161.02. Microsoft slightly extended its recent advance, as it reached the new record high of $345.10. The two biggest megacap tech stocks reached new record highs, as we can see on their daily charts:

Conclusion

The S&P 500 index is expected to open 0.4% higher this morning. We will likely see some more short-term fluctuations along the record high level. For now, it looks like a short-term consolidation and a flat correction within an uptrend.

Here’s the breakdown:

  • The S&P 500 is fluctuating along the 4,700 level. For now, it looks like a short-term consolidation following the October-November rally.
  • Still no positions are justified from the risk/reward point of view.

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Thank you.

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak,

Stock Trading Strategist

Sunshine Profits: Effective Investments through Diligence and Care

* * * * *

The information above represents analyses and opinions of Paul Rejczak & Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Paul Rejczak and his associates cannot guarantee the reported data’s accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Rejczak is not a Registered Securities Advisor. By reading his reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Nvidia Could Join the $1 Trillion Club Following Latest Earnings Report

Nvidia could be looking to join the $1 trillion club after surpassing the $800 billion mark earlier today.

Nvidia Reports Better-Than-Expected Earnings

The shares of Nvidia have been rallying since the company reported its third-quarter fiscal earnings earlier today. The company’s earnings surpassed analysts’ estimates, and the stock is up by more than 8% at press time.

The revenue in the third quarter was $7.1 billion, surpassing the $6.82 billion estimated by Wall Street analysts. Furthermore, the earnings per share were $1.17, which is above the $1.11 expected by analysts.

Nvidia’s earnings per share were up by more than 60% year-over-year, while the revenue is up by more than 50% from the same period last year. Following the recent stock rally, Nvidia’s market cap surpassed the $800 billion mark earlier today.

Nvidia has been outperforming most of the stocks in the chip manufacturing sector. The company reported $2.9 billion in data center sales, up 55% from the year-ago quarter. According to CEO Colette Kress, Nvidia’s chips have gained massive usage in the artificial intelligence space.

NVDA stock chart. Source: FXEMPIRE

Nvidia Could Be the Next Trillion-Dollar Company

Nvidia’s market cap rose past the $800 billion mark after the company reported its third-quarter earnings. According to CNBC’s Jim Kramer, Nvidia could be set to be the next trillion-dollar club. The chip manufacturer could join giants such as Tesla, Apple, Amazon and Microsoft in this category.

The chip manufacturer is one of the best-performing companies in the tech sector. Since the start of the year, NVDA has added more than 140% to its value. At press time, NVDA is trading at $315 per share.

If the stock continues with its recent performance, it could rally past the $350 level before the end of the year. This could see its market cap close in on the $1 trillion mark over the coming weeks and months.

Nvidia’s Crypto Mining Processor Falls Flat Amid Heightened Competition

Cryptocurrency prices might be off their peak, but the market has still achieved new heights this year. One company that is poised to benefit from the market is chipmaker Nvidia. Its hardware has been in high demand in crypto mining circles, leaving the company unable to satisfy its core market, gamers.

Earlier this year, Nvidia tailored a GPU specifically for professional crypto mining with a focus on Ethereum. It’s called the Cryptocurrency Mining Processor, or CMP, but things haven’t worked out exactly as planned.

Nvidia revealed in its Q3 earnings report that its CMP revenue plummeted 60% vs. Q2 levels to $105 million. In Q2, Nvidia generated sales of $266 million from the CMP graphic cards. Worse, the bleeding isn’t over and the company forecasts that CMP sales will dwindle even further in Q4.

The weaker demand comes amid a disastrous supply chain situation in which chips are hard to come by on retailers’ shelves. In addition, the competitive landscape is also heating up, and crypto miners have other options.

Competitive Landscape

When it comes to cryptocurrency mining, there is competition coming from all angles. Gamers compete with cryptocurrency miners, while chipmakers compete amongst themselves.

Most recently, the tech community is watching a trend in which CPUs made by Nvidia rival Advanced Micro Devices (AMD), specifically the Ryzen 9 and Threadripper, are also in high demand among crypto miners due to dwindling GPU supply.

Instead of bitcoin or Ethereum miners, however, the culprit appears to be a lesser known cryptocurrency called Raptoreum. The mining process for Raptoreum involves CPUs, not ASIC machines or GPUs. Raptoreum relies on what’s known as the GhostRider algorithm, which was designed specifically for this project. According to the Raptoreum website,

“It was built to discourage specialty hardware such as ASIC & FPGA enabling anybody to competitively mine it and increase overall decentralization.”

Ethereum Mining

Ethereum currently relies on a proof-of-work (PoW) consensus algorithm, like Bitcoin. With Ethereum moving away from PoW to a proof-of-stake (PoS) model, however, Nvidia is at risk of experiencing even weaker demand for its GPUs, at least from the crypto industry. Nonetheless, the transition to PoS won’t happen overnight. With the Ethereum price hovering above $4,000, miners are incentivized and profitable.

Nvidia’s other graphics cards also have the capability mine crypto. So while CMP sales might not be going over as hoped, it’s possible that crypto miners are just preferring Nvidia’s other hardware. Nvidia CFO Colette Kress stated,

“Our GPUs are capable of digital currency mining, though we do not have visibility into how much this impacts our overall GPU demand.”

Why NVIDIA Stock Is Up By 10% Today

NVIDIA Shares Move To New Highs After Strong Quarterly Report

Shares of NVIDIA opened with a gap up today and are moving higher as traders react to a strong quarterly report.

NVIDIA reported revenue of $7.1 billion and adjusted earnings of $1.17 per share, easily beating analyst estimates on both earnings and revenue. Data Center revenue totaled $2.94 billion, while Gaming revenue grew to $3.22 billion. On a year-over-year basis, NVIDIA’s revenue grew by 50%, which is an almost unbelievable performance for a company of this size.

In the next quarter, NVIDIA expects to report revenue of $7.42 billion, so it expects to record revenue growth of 4.5% on a quarter-over-quarter basis.

The company stated that it remained committed to the acquisition of Arm, but it remains to be seen whether the deal will be approved by regulators.

What’s Next For NVIDIA Stock?

NVIDIA stock was one of the main beneficiaries of recent talks about “Metaverse” from Meta Platforms (former Facebook) and Microsoft.

Not surprisingly, analyst estimates for NVIDIA were moving higher in recent months. Analysts expect that the company will report earnings of $4.14 per share in the current year and $4.72 per share in the next year, so the stock is trading at roughly 68 forward P/E.

That’s expensive, but traders bet that the company will continue to grow at a very fast pace, and analyst estimates will move even higher.

S&P 500 is trading near all-time high levels so traders’ risk appetite remains strong. The market has shown its ability to tolerate rich valuations in case companies grow fast.

However, some traders may prefer to take some profits off the table after the major rally. RSI for NVIDIA stock is in the overbought territory so there is a material risk of a pullback, although RSI has recently moved away from yearly highs.

It should be noted that strong demand for growth stories may prevent this potential pullback. The fundamental story remains strong, and NVIDIA shares have a good chance to finish this year at all-time high levels.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Futures Gain Ground In Premarket Trading

NVIDIA Stock Rallies After Strong Earnings Report

S&P 500 futures are moving higher in premarket trading as tech stocks get support after a strong quarterly report from NVIDIA. The company easily beat analyst estimates on both earnings and revenue, and its shares are up by more than 8% in premarket trading.

Other leading tech stocks like Apple, Alphabet, Meta Platforms and Tesla are also moving higher in premarket trading. S&P 500 remains close to all-time high levels, and strong performance from tech stocks with huge market capitalization may push the index to new highs.

Initial Jobless Claims Decline To 268,000

Traders have a chance to take a look at the latest job market data. Initial Jobless Claims report indicated that 268,000 Americans filed for unemployment benefits in a week compared to analyst consensus of 260,000.

Continuing Jobless Claims declined from 2.21 million (revised from 2.16 million) to 2.08 million compared to analyst consensus of 2.12 million.

The job market reports were mostly in line with the analyst consensus, and it remains to be seen whether they will have any impact on the stock market today.

WTI Oil Made An Attempt To Settle Below The $77 Level

WTI oil found itself under more pressure after Reuters reported that U.S. asked big oil consumers to release oil from their stockpiles in order to put pressure on prices.

According to the report, U.S. approached China, India, Japan, South Korea. China has already stated that it wanted to release some oil from its reserves although it was not clear whether this move will be done in coordination with U.S.

Not surprisingly, the market viewed the potential coordinated action as a negative catalyst for oil prices. However, WTI oil managed to find support near the $77 level and moved back towards $78.50 as it was not clear whether any potential move from U.S. and China will have a durable impact on the oil markets, while lower reserve levels may serve as a bullish catalyst in the future.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Is Almost At New Record High, Will The Uptrend Continue?

For in-depth technical analysis of various stocks and a recap of today’s Stock Trading Alert we encourage you to watch today’s video.

The S&P 500 index gained 0.39% on Tuesday, Nov. 16, as it closed slightly above the 4,700 mark. The market reached the daily high of 4,714.95 before retracing some of the intraday advance. It got close to the Nov. 5 record high of 4,718.50. Last week it fell to the local low of 4,630.86 and it was almost 88 points or 1.86% below the record high.

The early November rally was not broad-based and it was driven by a handful of tech stocks like MSFT, NVDA, TSLA. The market seemed overbought in the short-term and it traded within a topping pattern. Then the index retraced some of that advance, as it fell the mentioned 88 points from the record high.

The nearest important support level remains at 4,630-4,650 and the next support level is at 4,600. On the other hand, the resistance level is at 4,700-4,720. The S&P 500 broke below its steep short-term upward trend line recently, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Nasdaq Extended Its Short-Term Uptrend

Let’s take a look at the Nasdaq 100 chart. The technology index broke above the 16,000 level recently and it was trading at the new record high. The market accelerated higher above its short-term upward trend line. But last week it retraced some of the advance and it got back to the 16,000 level. Since then it has been advancing and yesterday it got back closer to the record high, as we can see on the daily chart:

Apple Above $150, Microsoft at New Record High

Let’s take a look at the two biggest stocks in the S&P 500 index, AAPL and MSFT. Apple broke above the $150 price level yesterday. However, it remains well below the early September record high. Microsoft stock retraced all of its recent decline and it reached the new record high of $340.67 yesterday, as we can see on their daily charts:

Conclusion

The S&P 500 index is expected to open virtually flat this morning. We may see another attempt at breaking above the 4,700 level. However, the market will likely continue to fluctuate along that level following mixed economic data releases.

Here’s the breakdown:

  • The S&P 500 bounced from its last week’s local low and it got back above the 4,700 level yesterday. It still looks like a short-term consolidation.
  • Still no positions are justified from the risk/reward point of view.

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Thank you.

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak,
Stock Trading Strategist
Sunshine Profits: Effective Investments through Diligence and Care

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The information above represents analyses and opinions of Paul Rejczak & Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Paul Rejczak and his associates cannot guarantee the reported data’s accuracy and thoroughness.

The opinions published above neither recommend nor offer any securities transaction. Mr. Rejczak is not a Registered Securities Advisor. By reading his reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.