October 28, 2009

Stocks – MSFT, AMD, NVDA, SQ

MACRO – EWG, SPY

Michael Kramer and the clients of Mott Capital own MSFT

Stocks are falling around the globe as stimulus hopes end, and coronavirus cases surge. We are seeing Germany sink by over 3.3% and is now down about 12% since October 9. The only piece of good news is that the index is likely oversold for the short-term. But otherwise, the index is not sending any positive signals and suggests that the US markets still have further to fall. 

S&P 500 (SPY)

The S&P 500 futures are sinking and will need to find some support around the 3,300 level.  After that, it is a rather long drop to around 3,200. The futures still could have quite a distance to fall, given the RSI isn’t even close to being oversold. 

But with stimulus hopes off the table, and a long dark winter possibly ahead of us, what is the market left to cling to from a bull narrative standpoint? I’m not sure there is much left at this point.  The bigger problem is that 3,200 then becomes a very important level of support, with a break of 3,200 confirm a double top pattern in the S&P 500. 

Microsoft (MSFT)

Microsoft is trading slightly lower this morning after reporting really good earnings but gave slightly weaker guidance. The biggest problem for the stock as I see it is that at this point it is multiple is too high and needs time to cool off after a big run in 2020. There is nothing wrong with the business, just the stock price is way ahead of itself. It is also telling us that big beats will not be enough this quarter to send stocks up.  The stock should find some solid support around $198. 

Nvidia (NVDA)

I guess we will find out really soon if Nvidia will break that uptrend. It will be interesting to see how the stock responds. It is sitting right on the trend line this morning, and it won’t take much to see fall. 

Square (SQ)

Square is melting, and the stock is testing its 50-day moving average for the time since April. A break of the 50-day and break of support at $162 sets up a drop to $149, and probably a decline to someplace much lower than that. 

AMD (AMD)

AMD has gotten a bunch of price target increases today, and I really can’t understand why the issue of dilution doesn’t seem to be coming up. Maybe I’m missing something, or perhaps, the market functions differently today. The company is paying nearly 1/3 of its market cap in stock for a company. That seems like a pretty healthy amount of dilution to me.  A break of $75 sets up a drop to $69.50 and then $62. 

I’m still shocked Xilinix would agree to an all-stock deal. 

Ok, have a good one.

-Mike

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