Bellwether semiconductor stock Nvidia crashed this week after their earnings call. What does this mean for the semiconductors sector in the short and longer term? Our stance is simple: the semiconductors sector rose too fast, and needs a breather now. However, we see a breath-taking semiconductors sector chart which is likely about to prepare a multi-decade breakout in 2019. This, of course, suggests there will be no stock market crash, but rather a stock market recovery in the months.
Nvidia lost 20 pct in one day on Friday, after it released earnings on Thursday after the closing bell. As always media hastens to blow up the situation, and, in the short term, rightfully so. The Nvidia stock crash on CNBC and the loss of market cap equal to AMD (a smaller competitor).
What would mainstream media commentary be without Mr. Cramer’s vision? Stay away from Nvidia is what he said on CNBC. He did not add whether he wanted to buy low or whether he puts his money where his mouth is.
Now this is the major problem with financial media nowadays. There is no way of knowing why any guru, specialist, commentator or journalist says something. Is this because of his boss obliging him? Is it because of personal benefit? Is it because of decent and honest analysis?
One thing is clear. We said many times that Investors Should Love Market Crashes because they can make most money after a crash regardless if it is a market or a stock or cryptocurrency crashing. The key point of course is understanding if and when to buy after a crash. That is the magic success formula.
Breath-Taking Semiconductors Sector Chart: Multi-Decade Breakout In 2019?
Nvidia’s stock price crash caught our attention because of 2 reasons.
First, it is a crash, and any crash should be analyzed carefully, as there might be a giant opportunity tied to it.
Second, Nvidia is a typical situation, textbook case, where investors could not catch this fast rising, and are now attempted to buy just because of their emotion in the past of missing out. Here as well, there is risk, but potentially opportunity. The question is if and when there is opportunity.
We believe the answer to above question is largely determined by the overall semiconductors sector chart.
The long term semiconductors sector is truly breath-taking. It shows a giant double top. Since the dotcom peak in 2000 it tested similar levels multiple times last year and this year, only to show some sort of rounding top. No coincidence that this price level would be rejected at the first attempt after the 2000 peak.
In the meantime we see a giant triangle formation, one that spans over more than 2 decades. This time span makes it so exceptional.
Reasonably, we can expect more downside potential at worst, and consolidation at best, before a next attempt to break out to all-time highs in the semiconductors sector. Our best forecast is that consolidation in the semiconductors sector will hit the rising support line in the next few months. Obviously, this assumes that volatility in global markets will stabilize before the end of this year, otherwise we will be looking a major breakdowns also in the semiconductors sector.
If, and that’s a big IF, global markets stabilize, we believe that the semiconductors sector will lose their leadership in order to build up steam. In some 12 months though they might have formed a strong base which would allow them to engage in a multi-decade breakout, bringing them to new all-time highs.
Somehow this reminds us of the health sector retracement which started in 2015. That’s why Nvidia should be very high on your watchlist, though not necessarily on your short to medium term buy-list. Nvidia is one of those stocks that nobody will be talking about in a couple of months which is the ideal setup for the resumption of its bull market. Watch the semiconductors chart for guidance!