Microsoft
Microsoft (MSFT) is one of the Magnificent Seven stocks that has maintained its value well against the backdrop of recent selling.
The software and AI giant remains only 4% from its all-time highs, as the company prepares for its earnings call next week.
Historically, Microsoft sees a simple “buy the rumor” rally that averages a return of 5-7% ahead of its last five years of earnings. Buy the rumor rallies are driven by investors crowding into a stock ahead of an expected jump in the stock as a result of earnings.
From a technical perspective, Microsoft broke a significant technical level today as it moved below its 50-day moving average. In addition, the stock broke its bottom Bollinger Band, a signal that short-term prices are going to see an increase in volatility.
There are two “lines in the sand” that could provide support for the stock.
- First, $410 which has been a mean price for the trading range that Microsoft has been in over the last two months.
- Second, the round-numbered $400 price. That price has served as support on three different occasions since January.
A break below those two prices in addition to the 50-day moving average will cause the stock to immediately retreat as investors’ excitement about the upcoming earnings report will immediately turn to fear and a price target of $370.
Nvidia
Semiconductor companies are taking another round of selling hits today, market by the leader of the pack, Nvidia (NVDA) shares, trading lower by 4%.
For the most part, the software side of AI has been resilient over the last few days as Alphabet (GOOGL), Microsoft, and Amazon (AMZN) remain near their highs. The same can’t be said for shares of Nvidia, though as the stock is now more than 10% from their March highs.
The move now has NVDA in a position to test its critical 50-day moving average which is hovering at $830. The stock breached this price on April 9 before quickly bouncing back to $900, but this round-numbered price kept the stock restrained.
One big difference between the three companies I just mentioned is the fact that Nvidia won’t report earnings until mid-May, while Amazon, Google, and Microsoft are all set to report next week. Many traders may be holding these names because of the approaching earnings reports.
Another headwind for Nvidia is the selling that is taking place in the semiconductor sector as shares of AMD (AMD), Intel (INTC), and Micron (MU) have all experienced widespread selling.
A break of Nvidia’s 50-day will trigger more selling pressure that will target the next level of technical support at $800 followed by $700 if $800 does not hold.
Reddit (RDDT) shares are sitting at another major price test. Reddit shares have fallen to their lowest trading level Just weeks after it’s highly touted IPO debut.
Currently at $40, the stock is drawing very light volume, suggesting that the sellers have run their course but also that buyers aren’t willing to step in and consider the stock a “value.” That’s not a big surprise, as the company has yet to announce any earnings results and forecasts.
Monday marked the first large round of analyst recommendations on the stock as nine different research departments issued their ratings. Seven of the nine recommendations were “buys” with the average price target sitting around $50.
The recommendations fell on deaf ears in the market as investors have shifted their attentions to the risk side of the market, not a long-term view.
Historically, it is common to see participants support a new IPO early in its trading, which appears to somewhat be the case at $40. Reddit’s current price is also sitting right at the initial valuation of 6.5 billion, helping to hold $40.
That said, a break below this price and the initial valuation of the stock could initiate larger fears that yet another IPO is on its way to a long-term reality test.
The rise and fall – so far – of Reddit tells a larger story as the first large IPO in years was supposed to test the waters for other companies like Stripe, Discord, and Chime.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.