7/31 Daily Plan: Mega Bounce Off DCF Bear/Base Case Levels
Very powerful recovery rally today.
We have FOMC later today, so anything can happen, but a couple observations so far:
After reaching my fundamental Bear Case of 130-140, AMD’s earnings results sparked a tremendous Semiconductor rally that is now lifting QQQ ETF (NQ) off its oversold levels back above the 8-Day Moving Average. This is the power of combining DCF Analysis along with technical analysis. When markets are extremely volatile, I rely more on DCF Analysis. Technical Analysis works better when investor sentiment is more stable.
We talked about how any bearish Microsoft decline would be in the realm of 3-4% max. Despite all the sabertooth rattling after yesterday’s post earnings reaction of -6%, it appears MSFT isn’t going to exceed this decline parameter that I shared with members. The truth is, the Street isn’t going to easily allow stocks to trade far beneath my Base Case and onto the Bear Case. Something dramatic would need to happen. I don’t see a real reason to be bearish in Microsoft’s earnings report. If anything, their CapEx spend emboldens my model’s hypothesis that Semiconductors are forming a highly volatile base which will ultimately resolve for a leg higher.
Almost all of the Semiconductor SOXX Stocks within my coverage traded below my DCF Base Case earlier this week and then staged a huge recovery in this session ahead of FOMC.
We’ve seen multiple examples by now that when Stocks reach my stress-tested levels - which are between my Bear and Base Case - we just need one/two catalysts to spark a powerful bullish sequence. If investors are not buying at the Bear Case, then when do they plan to do so?
A couple things to look for in tonight’s earnings calendar:
CapEx spending trends from Meta
CapEx outlook from Lam Research
AI Commentary from Qualcomm
Out of the 3 companies reporting tonight, I think Lam’s results are the most important over the intermediate-term.
The market might “react” /move short-term on Meta’s outcomes, but it is Lam’s outcomes that drive the real move later on.
While I of course hope all 3 perform well, the most important company out of the 3 to determine whether this tech/semi recovery leg is real is Lam Research.
If LRCX can find a bottom, any further leg down in NQ / QQQ ETF is false and will eventually result higher.
If LRCX cannot find a bottom, I may have to lower my Bull Case on Big Tech and Semis.
Ideally that doesn’t happen.