Chicago, IL – February 20, 2024 – Today, Zacks Investment Ideas feature highlights Costco COST, Ebay EBAY, Tesla TSLA, Qualcomm QCOM and Super Micro Computer SMCI.
Super Micro Computer: Shades of 1999?
Who Was William O’Neil?
William J O’Neil was a famous growth investor known for his rules-based investing process called CAN SLIM. Over O’Neils long and illustrious career, he made a fortune investing in the hottest, most innovative growth stocks of the day, and more importantly, selling them near the top. Over his multi-decade career, O’Neil made millions in novel ideas and companies such as Price Company (which later became Costco, online marketplace Ebay, EV-pioneer Tesla.
It’s About What You Keep
Once a growth investor takes time-tested principles like growing earnings, a bullish chart pattern, and a growing industry into account, making money in the market becomes not only possible, but repeatable. However, buying winning stocks is not the issue for the majority of investors. After all, a baby can pick Scrabble letters out of a bag and potentially find a winner.
The hard part of investing is selling stocks; especially those that are moving in your favor rapidly. O’Neil was genius at doing this: He rode internet-related stocks like Qualcomm higher for months before selling them near the absolute top. How was O’Neil able to pull off such a feat? By studying hundreds of winning stocks and their topping patterns.
“The pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.” ~ Jesse Livermore
The Climax Top
Though O’Neil had several sell signals, today we are going to focus on a sell signal that is relevant to today’s environment. Below is a blurb from O’Neil himself on Climax Tops:
“Many leading stocks top in an explosive fashion. They make climax runs – suddenly advancing at a much faster rate for one or two weeks after an advance of many months. In addition, they often end in exhaustion gaps – when a stock’s price opens up on a gap from the prior day’s close, on heavy volume.”
Key Rules of the Climax Top
1. Largest daily price run-up: A cautionary sign occurs when a stock that has rallied for months experiences its largest point increase in the move.
2. Heaviest daily volume: Extreme volume is a signal that trapped shorts have capitulated, while amateur longs chased the extended stock.
3. Exhaustion gap: If a stock gaps up (trades higher in after-hours trading) multiple times, the advance is on its last leg.
4. Climax top activity: “Sell if a stock’s advance gets so active that it has a rapid price run-up for two or three weeks on a weekly chart, or for seven of eight days in a row or eight of ten days on a daily chart.”
1999 QCOM Case Study
In 1999, no hotter stock existed than semi-conductor maker Qualcomm.As the internet craze went into a frenzy, QCOM ran from ~$6 to $200 in a year! Sure enough, the move came to an end in a classic climax top:
1. Largest point spread: On December 29, 1999 QCOM gained $39 points in a single session, marking its largest point spread to that point.
2. Heaviest daily volume: Though QCOM didn’t trade its highest volume ever, volume on 12/29 soared 142% versus the 50-day average and was the heaviest volume in weeks.
3. Exhaustion gap: After running for months, QCOM gapped up in price from an extended move. ***(It’s important to decipher a gap up from a base (healthy) from a gap up from an extended move (exhaustion))***
4. Climax top activity: From 12/13/1999 to 12/21/999 QCOM shares gained ground for seven straight sessions – a red flag.
Below is the 1999 QCOM example marked up. A good exercise is to look at each data point and match them up to the chart and the commentary.
After topping in January 2000, QCOM shares would not see their climax top highs for another twenty years!
Super Micro Computer:Shades of QCOM in 99’?
Like QCOM in 1999, SMCI is a clear leader in today’s market. Over the past fiver years SMCI is up nearly 5,000%. Year-to-date (keep in mind we are in February), the bull trend has accelerated, and shares are up a mind-blowing 250%! Instead of the internet, the new frenzy on Wall Street is AI.
After such a breathtaking move, its worth looking at SMCI as a potential Climax Top situation. The stock gapped higher for a second straight day from an extended move, saw its highest trading volume in history (25 million shares, 244% above average), saw its largest one-day point spread ($123), and has gained ground for nine straight sessions (climactic activity)
To give you an idea of SMCI’s strength, the stock opened 2024 at ~$275, and today, gained $123 points for the day!
Bottom Line
The stock market is notoriously hard to predict, especially calling tops. However, SMCI has all the ingredients to a classic Climax Top pattern.
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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
