Technology bulls continued on Wednesday to fall back, ceding ground all the way to a key support level, states Jon Markman, editor of Strategic Advantage.
The Nasdaq 100 closed at 15,102, exactly on its 50-day moving average, a critical support point. There are no coincidences. The benchmark has been under pressure since July 19 when bulls pushed near 16,000.
Bears say that stocks fully reflect any possible future good news. It’s a cool narrative that is resonating. It helps that a number of firms have seen their shares slashed, despite reporting blowout financial results.
Super Micro Computer (SMCI) on Wednesday became the latest company to fall into this unfortunate category. Shares of the data center equipment company plummeted by 23.4% even though fourth-quarter net sales rose to $2.2 billion, up 34% year-over-year. Profit per share was $3.51, versus the consensus expectation of $2.96, according to FactSet.
Bears made a big deal about conservative forward guidance, however, executives at Super Micro have a long history of under-promising and over-delivering. It is what accomplished managers do. The Q4 report was impressive. The reaction from investors was weird, yet sentiment can change quickly, especially when a stock has run up sharply.
In bull markets, it is quite common for high-fliers like Super Micro to be shot from the sky. This doesn’t mean the business is broken. Parabolic advances often lead to parabolic declines. It’s math, meaning reversion.
The July consumer price index is due Thursday before the open. This would be a good opportunity for bulls overall to return to their battle stations. It helps that the NDX is resting on critical support. There is further support for the benchmark at 14,665. Resistance is 15,379.
NASDAQ 100 Timing Model: Members were instructed to buy ProShares Ultra QQQ (QLD)—a 2x leveraged ETF that tracks the Nasdaq 100—at $63.00 on June 28. Members then sold half of the position on July 19 at $70.59 for a 12.1% gain. The second-half position was sold Tuesday on stop at $64.53, a gain of 2.4%. The overall gain was 7.3%. The trade is now closed.
