Long-Term Levels on Long-Term Stocks
Let's look at some charts.
I wanted to take a minute to deliver on my promise of providing some longer term setups that I’m watching. If you do not trade individual names, that’s just fine. This is more of a blend between fundamentals and technicals.
I won’t get into all of the fundamental stuff here (or at least, not right now), but I like applying the technicals to stocks that have a solid long-term track record and good businesses.
Here’s a few that I’m watching, especially if volatility picks up considerably in the few days/weeks.
The caveat is: These are not trades, but rather investments, and position sizing is still key for these longer term holds. I want to own these names for quarters or years depending how they perform post-purchase.
GOOGL
Strong balance sheet, excellent assets and strong cash flow. The biggest flaw is its tie to the economy (i.e. how a recession would impact ad revenue and margins). Unless Google.com and YouTube.com become irrelevant though, GOOGL stock will be fine long term.
Teetering on $100, that $90-ish area is calling out if current support gives out. There we have the fifth wave down — the “E” leg — into a key area (see chart as to why).
While of course it could go lower, GOOGL stock would be down 40% if it gets to this zone. For context, shares are already down 34.8% this year, exceeding its Covid decline of 34%. In the last 12 years, it’s only fallen by more than 30% one other time, when it dipped 31% in 2010.
MSFT
Very similar situation in Microsoft here, as it teeters on the $240-is level. If we get a break of this level, we could see $215 to $225.
Like Google, the stock finds several key areas in this zone, including: The 61.8% retracement from ATHs to the Covid low, the $225 breakout area and the 200-week moving average.
Also like GOOGL, it would take a ~40% correction to get there and this is name not known for big corrections. Over the last dozen years, the two largest corrections prior to 2022 were a 28% pullback in 2010 and the 30.5% correction at the Covid lows.
I will take a 40% discount in two balance sheet/cash flow juggernauts any day of the week. Plus, did you know that MSFT has better operating margins than all of FAANG?
NVDA
Nvidia is a sensitive one for some people. I happen to love the company, but have not had a position in the stock until recently after nibbling here near the 200-week moving average.
I acknowledge that this one may fall further, potentially into the $110 to $115 zone and may even see $100 if the selling really picks up. However, 64% off its high and into a potential zone of interest and it’s hard to ignore this one if you’re buying for the long, long term and can nibble in increments.
The company has seen demand slow down and if a global recession gains steam, demand will worsen in the short term.
Since 2009, Nvidia’s had three declines in excess of 50%: A 54% decline in 2009/2010, a 57% decline in 2011/2012 and a 57% decline in 2018.
Currently down 64% and perhaps NVDA’s pain is starting to get overdone. Perhaps.
AMD
As far as we know, AMD is holding up incredibly well. When we last heard from the company, last quarter was strong and guidance and FCF were only slightly below expectations.
Does it deserve a 58% beating?
I don’t know — and it doesn’t matter. All I know is, like NVDA, this one is down big into the 200-week moving average, a level it hasn’t tested in six years. Further weakness puts the $59 to $64 area in play.
Lastly, look at the consensus estimates for AMD — mainly this year and 2023. They have risen for most of the year and are now holding steady. This business isn’t in contraction, only its stock price is.