Last week I heard lots of voices that called the bottom in the Semiconductors sector, especially on Friday when the whole sector made a 52-week low. I believe we have yet to see the bottom in the semiconductors sector. Why? let's take a dive into Fundamental and Technical Analysis as well as the Options Flow from the last week.
Last Thursday, Memory-chip maker Micron Technology Inc. ($MU, -2.95%) gave a downbeat forecast for its next fiscal quarter, warning that flagged demand was cooling for chips used in computers and smartphones. As a result, global semiconductor stocks were under pressure on Friday and closed at a 52-week low.
“There are consumer-demand and inventory-related headwinds impacting the industry and consequently our fiscal-Q4 outlook,” Micron Chief Executive Sanjay Mehrotra told analysts Thursday.
Furthermore, Advanced Micro Devices Inc ($AMD) flagged last month a slowdown in PC sales this year. Adding to woes was a Digitimes Asia report that the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Co., ($TSM) has seen its major clients cut their chip orders for the rest of 2022.
It is very clear that the markets are being impacted by weakness in consumer spending in China due to COVID lockdowns, the Russian-Ukraine war, and rising inflation.
With the upcoming earning season we may see more semiconductor companies predicting a slowdown in sales and demand, which will result in even more downside in the sector. I also believe that the market has yet to price in a recession in semiconductor stocks, which strengthens my thesis that we haven't bottomed.
In eyes of Technical Analysis, I will focus on $NVDA and $AMD. both have closed the week at the low of the candle, right at a 2 years critical support. We may see some relief rally in the sector (of course depending on the general market), but I'm watching the levels of 73-74 and 58.86 for $AMD and 131.31 and 119.89 for $NVDA.
Last, Let's see what the Option Players are expecting:
We see Call flows for close exp (as I have said we may see a relief rally in the short term)
Long term, the Option Players are bearish as you can see below:
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