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6/28/2022 10:20:43 AM Eastern Time

WAKE ME UP WHEN THE ACTION STARTS (AND SELLING STOPS)
By Charles Payne, CEO & Principal Analyst

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Talk about a snooze-fest. Yesterday, there was a constant feeling the market could tank at any moment, and it appeared on its way more than once. The good news is that it held. In addition, market breadth was encouraging, with a major decline in new lows.

The Russell 2000 small-cap index was the only major composite that finished higher. It bounced off the former resistance point, but only midway in the trading channel – which is pointed decidedly south.

Heat Map

Energy (XLE) got a bounce after a dive that would make a peregrine falcon jealous. However, defensive names continued their stealth dominance as Utilities (XLU) and Health Care (XLV) were the only two other sectors to join XLE.

Lots of hues of red on the screen; there just wasn’t any leadership from mega-cap stocks.

State of Economy

Atlanta Fed

The Atlanta Fed GDPNow forecast didn’t dip below zero, and that was good news. Also, at 0.3%, the scuttlebutt about recession cannot be dismissed.

Big D Got Dunked

I can't believe what the judge had to tell us

I got the jeep and she got the palace…-Mark Chesnutt

The Dallas Fed Manufacturing Survey was a disaster coming in at -17.7 from -6.5 and a consensus of -7.3. ‘ Input price’ increases continue to outpace the ‘selling price’ increases – they are doing profiteering all wrong.

The Dallas Fed hints at a serious disaster in the upcoming Institute for Supply Management (ISM) report (one more regional Fed report left – today is the Richmond Fed).

Portfolio Approach

We are adding a new position in Technology in our Hotline Model Portfolio this morning.

Today’s Session

Nike reported after the close, and laid an egg, as sales in China were dinged from all those lockdowns but also some anti-American sentiment.  The big issue, however, is excess inventory.  The 23% jump in inventory, especially apparel, is good news for consumers.  It also could help mitigate recession risk, which is still up in the air.

Lower Earnings Estimates

It’s the big debate on the street, but in some ways, it’s nonsensical to me. But everyone is saying the same thing, earnings estimates are too high.  My reaction is so what – if the market is going down it doesn’t seem to be waiting for Wall Street analysts to get their act together. 

I think we can get positioned ahead of the street that will be waiting for such cues.

Peak earnings growth correlated perfectly with peak S&P 500.

Now PE has changed and has turned negative – to levels associated with previous bottoms (March 2020 and December 2018).

This is a process, but there is no doubt in my mind the street is going to establish a case for a monster rally on lowered earnings estimates in future quarters this year – after those adjustments (wink-wink).

Long Idea: Microchip Technology Incorporated (MCHP) @ $62.50
Industry: Technology; Semiconductors
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BACKGROUND: Microchip Technology Incorporated develops, manufactures, and sells smart, connected, and secure embedded control solutions in the Americas, Europe, and Asia. The company offers general purpose 8-bit, 16-bit, and 32-bit microcontrollers; 32-bit embedded microprocessors markets; and specialized microcontrollers for automotive, industrial, computing, communications, lighting, power supplies, motor control, human machine interface, security, wired connectivity, and wireless connectivity applications. It also provides development tools that enable system designers to program microcontroller and microprocessor products for specific applications; field-programmable gate array (FPGA) products; and analog, interface, mixed signal, and timing products comprising power management, linear, mixed-signal, high-voltage, thermal management, discrete diodes and metal oxide semiconductor field effect transistors (MOSFETS), radio frequency (RF), drivers, safety, security, timing, USB, Ethernet, wireless, and other interface products. In addition, the company offers memory products consisting of serial electrically erasable programmable read-only memory, serial flash memories, parallel flash memories, serial static random access memories, and serial electrically erasable random access memories for the production of very small footprint devices; and licenses its SuperFlash embedded flash and NVM technologies to foundries, integrated device manufacturers, and design partners for use in the manufa

SKINNY: MCHP has been of the key players in the production of microcontrollers for many years. The semiconductor reported revenues growing 25% in the fourth quarter and earnings up 24% sequentially and 267% year-over-year. Backlog reached a record high but lead times for shipping orders remained stretched. It is a good buy at the current price, our target $75.

There are no options with this idea.