Market Backdrop
The market sits in limbo in October, waiting for the next big catalyst - maybe post-election, maybe the next geopolitical move in Iran. This looks like consolidation and profit taking, which is not bad given stocks trade near all-time highs. Some key market drivers sold off, with chip names moving lower lately.
Rumors say the chip sales rally may be too much too fast. Some big buyers are private companies, not public, so there is no clear read on their profits, and they may buy fewer chips than expected. Stories also come out of China about new technology that will upend the space. These narratives have run for a while. Over the past three years, pullbacks tied to such narratives got pushed through by strong earnings and strong reports. What matters going forward is more spending, more hyperscalers backing the technology and saying the path to the future runs through more computing. If that comes through once earnings arrive in full force, the rally continues.
JPMorgan Chase (JPM)
My preferred bank to own long term. It serves as a strong read on how the broad economy is holding up. The economy faces heavy pressure: rising interest rates, inflation stronger than wanted, oil higher than wanted. Pressure on the economy usually means banks struggle. The offset is heavy economic activity flowing through AI spending. The hope is that spending filters through to the rest of the sectors, while big banks like JPM post strong quarters to show the economy is strong despite the pressure.
JPM reported a rare double miss, missing on both top and bottom line, yet guidance was good and net interest income rose. The stock seesawed, then traded up - around 1.25% to 1.5% on the day. Year to date it is up a little more than 4%, with little movement, partly because last quarter may have peaked on IPO activity.
On the chart: an intermediate-term pullback brought price back to a support level near 326 that has been tested often. Price moved up into the earnings announcement, gapped up on the double miss, then sold off into a spinning top - a wait-and-see signal reflecting the missed earnings against good guidance. Momentum is increasing. Price sits above 335 support and below 343 resistance, with the 50-period moving average rolling over a bit. The risk: if rates keep pressuring the financial sector and price breaks back below 326 support, this could form a large head-and-shoulders reversal pattern that pushes price into the mid-20s. That is the extreme case and not guaranteed, but the setup is not strongly bullish right now either.
Alphabet / Google (GOOGL)
Earnings come October 28th. The stock has moved up, down, and around - it ran over $400, then raised capital by selling stock, got hit after that, and has since climbed back, building some support. This is a company that knows the future well and has its finger on where everything is going. It faces heavy competition in the LLM world, but that is only one part of the future AI trade. It owns all the data centers and keeps expanding and building as much as it can because that makes a lot of money.
The open question is how the market digests how much money it spends - good news or bad news. From a long-term view, the heavy spending is good news because it brings in even more money later. The vision for how to use its AI stands out.
Alphabet is a middle-of-the-road performer among the Mag 7. It is up a little more than 13% year to date and up 45% over the last 52 weeks.
On the chart: the stock squeezed sideways with no significant catalyst, forming a symmetrical triangle centered on 350 support. Price sits at 356, right along the top edge of the diagonal downtrend line, and bounced off the 327 diagonal uptrend line. It is near the apex of the triangle. The likely catalyst is the earnings announcement, though more sideways trading is possible, and momentum is compressing into a range without pushing either way. If price breaks out, the prevailing uptrend points up to 365 and into the 380 range. A downside break points toward 327 at the bottom of the triangle. Barring new news, the stock can keep going sideways.
AMD (AMD)
Earnings come November 3rd, nearly a month out. The bar keeps rising - each new deal, like more Helios rack announcements and partnerships, ticks the bar higher. The stock trades around a 46 P/E, so investors are paying up for the potential.
AMD has a lot of room to catch up to Nvidia and does not have to compete with Nvidia on model training. It can compete on agent running, which is the target for its Helios rack. That is likely how profitability comes, and how Anthropic and OpenAI start making a ton of money on AI. AMD is planting its flag with the Helios rack, claiming the best and most cost-effective chip to get into that space.
The valuation is high, but projected growth is extremely high, so the valuation reflects the projections. A projection is not a guarantee of hitting it - that is the push-pull. If 100%-plus data center growth were certain, the valuation would be too low. If AMD meets that 100% data center sales growth, this is a potential buying opportunity.
On the chart: the stock exploded higher in the spring, went sideways through much of the summer, then looked ready to kick off another move up into the fall. It spent much of the year in the mid-200 range and now trades in the 500 to 600 range - a big move up, and a big gain for long-term holders. That brings profit taking at these levels while holding onto upside potential, which helps explain the bounce off the 560 mark. AMD may also be one of those names investors pull money out of to rotate into other leaders, then wait for a catalyst. At 560 there is an uptrending 50-period moving average. Momentum is slowing but not leading strongly to the downside, as price finds a roughly equal low. This may simply be a profit-taking bull-flag bounce in an uptrending stock. Announcements before the November 3rd earnings could act as a catalyst in either direction.
