continues to be nervous about higher Treasury yields and accelerating crude oil prices. Market reactions to earnings from tech bellwethers such as
have not helped, but on Tuesday evening
seemed to have allayed some concerns.
The Nasdaq has declined 3.7% since the high of 2219 on Aug. 3 to the low of 2137 on Aug. 16, which is still up 13.1% from the low of 1890 on April 29. Despite this pullback, my valuation models suggest that a rotation into tech stocks remains a compelling longer-term investment strategy for both fundamental and technical reasons.
Why? The technology sector is now 15.0% undervalued. The only other undervalued sector is health care, at 5.0%. All other sectors are overvalued, with energy 11.7% overvalued.
If there's a daily close on the Nasdaq above its five-day modified moving average (2165) before there's a weekly close below the five-week modified moving average (2133), the Nasdaq's correction is over. In recent trading Wednesday afternoon, the Nasdaq was up 15 points on the day, to 2152.
This week's resistance at 2185 will give way to a higher resistance at 2245 next week, with upside potential to my quarterly resistance at 2381 by the end of September. A deeper correction signaled by a weekly close below 2133 should be limited to my monthly support at 2060, which would extend the correction to 7.2%.
In June, the Nasdaq traded as low as 2040 with the 30-year Treasury yield at 4.18% and crude oil at $55.90 per barrel. However, when the Nasdaq began its decline from the high of 2219 on Aug. 2, crude oil prices were bubbling above $62 per barrel and the 30-year Treasury yield had climbed to 4.62%. Since then, the 30-year yield has stabilized, but crude oil traded above $67 per barrel. I think the threshold price for crude oil is $62 per barrel, and we need to see crude below that price to prevent a steeper Nasdaq correction.
Now let's see what the technology earnings picture looks like for the rest of the week.
when it reports after the close Wednesday. I'll take a closer look at this stock here, and I also will profile three companies slated to report Thursday:
. Marvell's profile is an update from
Network Appliance is expected to report earnings of 16 cents per share Wednesday afternoon. The provider of enterprise network storage and data management solutions is 35.2% undervalued in my valuation model, with a negative weekly chart profile.
Looking purely at the weekly chart, a weekly close below the five-week modified moving average (MMA) at $26.40 would indicate risk to the 200-week simple moving average (SMA) at $19.52. I don't believe shares will be punished that much and would consider buying the shares on weakness to my monthly and semiannual value levels at $22.28 and $22.24, respectively. At that price, shares should become more than 40% undervalued.
GameStop is expected to report earnings of 15 cents per share Thursday morning. The video-game and PC entertainment software retailer is in the process of closing a deal for the purchase of
. In my models, GameStop is 34.0% overvalued and Electronics Boutique is 72.7% overvalued, making the combination extremely risky for longer-term investors. The weekly chart profile for GameStop will stay negative if the stock closes this week below its five-week MMA at $32.45. With fair value at $22.52, shares need to trade above my monthly pivots at $31.84 and $33.24 to prevent further deterioration. Note that the 52-week high is at $36.17.
After the bell Thursday, Autodesk reports, and the company is expected to post a profit of 24 cents per share. My model shows that shares of the software and digital content solutions provider are 19.6% overvalued. The weekly chart profile is neutral, but a close this week above the five-week MMA at $35.43 would shift the weekly chart to positive. A positive reaction to earnings could result in a new 52-week high, but I would view this as an opportunity to sell on strength, as I show monthly and quarterly risky levels at $40.17 and $40.56, respectively.
To the downside, I show quarterly and semiannual value levels at $35.17 and $34.63. Autodesk was a short position in
model portfolio at $38.11 on May 27. I added to the position at $39.77 on June 7, the day of its 52-week high at $39.90. It was hard to find short trades in the tech rally that began in late April, but this one was a success: Positions were covered on June 15 and June 24 for gains of 4.6% and 15.2%, respectively.
Finally, Marvell Tech is expected to report earnings of 29 cents per share after the close Thursday. The designer of analog, mixed-signal and digital semiconductors is 30.7% overvalued, with a positive but overbought weekly chart profile. A positive reaction to earnings should result in a new 52-week high above $45.69, as Marvell is purely a momentum trade. My quarterly risky level is $49.84.
I want to make it clear that Marvell shares are way too overvalued for consideration by long-term investors. A positive reaction to earnings that keeps shares below my monthly risky level at $45.21 would be a red flag meriting some profit-taking. On a negative reaction to earnings, Marvell is vulnerable below monthly pivots at $44.30 and $42.72, but a weekly close below the five-week MMA at $41.94 would be the longer-term technical warning.
Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of
newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury Bond Trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury Strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback --
to send him an email.