Morning Comment: Key reversal for the chip stocks.

The S&P 500 traded in a very tight range yesterday…as investors waited for today’s CPI report. This is basically what took place last Thursday…when the market didn’t do much before Friday’s employment report. So, it was not a big surprise…..However, the Nasdaq and the Russell 2000 both did see some weakness as the tech sector took it on the chin. This weakness in the tech sector was led by the chip stocks…as Micron (MU) made a negative pre-announcement about their earnings. This followed Nvidia’s (NVDA) pre-announcement on Monday…and it sent the SMH semiconductor ETF lower by more than 4%.

This move in the chip stocks is an important development. As we highlighted in our weekend piece, the SMH was testing its early June highs…and it needed to break above those highs (and give it a key “higher-high”) if the group is going to see some more upside follow-through from its July rally. Instead, with yesterday’s significant drop, it looks like the SMH is going to fail at its key technical juncture. This is not good for the group…and given that the semis are an incredibly important leadership group for the broad stock market…it’s a negative development on several levels.

Having said all this, the SMH has only been falling for two days. If it can bounce-back quickly, the situation can be rescued. However, given that MU, NVDA, AMD, INTC, QCOM and several other chip companies have either reported lower-than-expected earnings or warned about their prospects for the rest of this year (or both), it’s going to be very difficult for this group to bounce back. (We thought the comment from the MU CEO…who said yesterday that things have turned down decidedly in the last month…was very telling.)

HOWEVER, we get the all-important CPI inflation number this morning. If that number shows that inflation is starting to decline in a meaningful manner, the entire market should see another nice boost. That, in turn, could/should give the chip stocks a lifeline. Whether it’s something that can keep the chip stocks rallying is another story…but there’s no question that this morning’s report should be a very important one.

Like the SMH, the SPX is testing its early June highs…and has been for over a week now. Thus, if it can finally break above that level in a significant way, it’s going to be bullish for most everything in the stock market. If, however, it’s a disappointing number…and it causes the S&P to fall in the kind of fashion that the SMH fell yesterday…things could get quite dicey…quite quickly.

There really isn’t a lot more we can add before this morning’s CPI data, so we’ll leave it there….except to say that the Red Sox are back in last place. As we all know, it is ESSENTIAL for the stock market that Boston teams do well, so this is another reason to be concerned at this key technical juncture for the markets. (Many people don’t realize that the SOXX semiconductor index is actually named after the Boston Red Sox!..........Okay, that’s not true…but it sure sounds good to THIS Boston fan!)

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.

Posted to The Maley Report on Aug 10, 2022 — 8:08 AM
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