Cups, Handles, and Chips: Serving Up the Next Breakout
POSTED BY: VANCE HOWARD
Markets sold off Monday as concerns about artificial intelligence’s profit impact on corporate America returned to center stage on Wall Street while investors await a crucial earnings report. Investors also ran up against President Donald Trump’s new 15% tariff on worldwide goods imported into the U.S. But the new tariff, invoked under Section 122 of the Trade Act of 1974, can be in effect for only 150 days before requiring Congress’ approval, leading to more uncertainty for investors.
The S&P 500 has been in a trading range since mid-November. I suspect we will see a sideways market for a few more weeks, if not a month or so. AI has everyone on pins and needles, not knowing what the outcome will be, and possibly not knowing what it will be for a long time. But there will be some big winners, and in all probability the stocks like Microsoft that you see selling off now will likely be some of the biggest winners.
There are some deeply oversold stocks out there, like Microsoft (MSFT) and Salesforce (CRM). In our opinion, if you would like a way-oversold basket of stocks, the iShares Tech-Software ETF (IGV) should be added to your buy list.
The Dow Jones Industrial Average held healthy gains Tuesday along with other key stock indexes after AI disruption fears drove them down by more than 1% each in the previous session.
On Tuesday, the S&P 500 rose 0.7% and found resistance at its 50-day line after closing below it on Monday. Meanwhile, the Nasdaq composite eased from the day’s highs but was up 1%, helped by recovering software and semiconductor stocks. Still, the tech-heavy index is solidly below its 50-day line. Small caps pushed higher, with Russell 2000 up 1.2% following its 1.6% loss on Monday.
Monolithic Power Systems (MRWR) is breaking out of a cup and handle pattern and looks strong, along with Texas Instruments (TXN). Both look like they have legs to move higher. Also, the iShares Semiconductor ETF (SOXX) looks ready to break out. Nvidia (NVDA) rose ahead of the AI chipmaker’s fourth quarter results this week. Shares are on a consolidation base with a potential buy point of 212.19.
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