Stocks Drop As Earnings, The BOJ and FED Come Into Focus

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7/30/24

#Stocks: $MSFT, $NVDA

#Macro: $SPX, $USDJPY, $VIX, #rates

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MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN MSFT

Stocks finished lower today, ahead of a pivotal three days. It kicked off today with Microsoft earnings and will continue through the night session with the BOJ, followed by the Fed tomorrow afternoon and Meta after the close. Thursday will bring us Amazon and Apple, and Friday will be the big jobs report for July.

The USDJPY was lower today as traders worry that the BOJ will hike rates tonight to 25 bps and will cut its bond purchase program. This sent the USDJPY down 152.75. The big area to watch is around 151.50; a break of support at the prior highs could be important and indicate that a drop to the mid-140s is possible and, more importantly, put that long-term trend line in play.

The move lower in the S&P 500 today helped to fill the gap from Friday’s opening. The index also hit the 10-day exponential moving average and failed there, closing below the 50-day moving average.

Technically, the pattern looks more like a bear today, which is being formed within the bigger, over the past couple of days within a larger and longer-term rising wedge pattern we have been tracking for several weeks. A break below 5,400 likely means the bear flag is broken, which would indicate that the rising wedge could be broken. If, by week’s end, the rising wedge is broken, it is likely because the move higher in the index is over.

The pennant in the NASDAQ broke lower today, allowing the NASDAQ to move down to the trend line that started in October. A break of that trend line would also be an important change in trend.

Microsoft reported results tonight. I have owned this stock for a really long time, since early 2019, and reading through them, they weren’t that great when compared to the expectations. The beat on the top and bottom was minor, commercial cloud revenue was a miss, intelligent cloud revenue was a miss, Azure growth was a miss, Capex was higher than expected (not good), and free cash flow was a miss. It just isn’t often you see so many numbers that miss expectations across multiple categories. You can’t miss when trading at 36 times the next twelve months’ earnings estimates.

Guidance will be key, of course, but it seems clear at this point that the ascending broadening wedge is now broken, and support at $396 is essential. A break of support at $396 could lead to a further drop to $370.

It wasn’t a good day for Nvidia either, with the shares dropping some 7%, breaking below support at $109, and the next major support level at $95. I think the double top has been confirmed at this point, and, interestingly, a projection of the top of the double top to the neckline suggests the stock falls to around $95.

Nothing tomorrow back on Thursday.

-Mike

Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.