Chip Stocks, Tech Earnings Fuel Nasdaq Rally; Credo, AEHR, Astronics In Focus

0:00There's a lot of hype and a lot of good news already priced into the marketplace today.

0:03Ken Shreve:We're entering a period of so much more change that it could be a tailwind for active management. Women are now in the protagonist seat for the family's financial story. I'm Joe Davis. And I'm Christine Kashkari. And this is season two of Better Vantage by Vanguard, an eight-part video podcast series hosted by custom content from WSJ and Vanguard. All investing is subject to risk, including possible loss of principle. This content was created by Custom Content from WSJ, a unit of the Wall Street Journal Advertising Department.

0:42Ken Shreve:Good afternoon, everyone, and welcome to Stock Market Today for Wednesday, August 12th. It's Alyssa Coram and Ken Shreve here, and we've got a breakdown of the action in today's session, where we did see some notable gains for the NASDAQ, S &P 500 and Russell 2000. A bit of a fade in some spots. The Dow did edge slightly lower, but we have a lot to get to today. Ken, what stocks are we going to be highlighting? Great day for chip stocks, Allie. So let's take a look at a couple of chip stocks. We want to take a look at Credo, C-R-D-O, and also a breakout in the chip equipment group. So let's take a look at AEHR, air test systems.

1:29And then in the aerospace and defense group, I know you looked at earnings after the close yesterday from ATRO. Nice breakout from that stock today. So we'll take a look at that one, too.

1:43Ken Shreve:Sounds like a plan. We'll do that. But first, a closer look at the major indexes. Here's the Nasdaq composite finishing up a half a percent on the day. The Nasdaq 100 up about three quarters of a percent, both fading off highs along with the S &P 500 up about a quarter of a percent, but holding in the recent trading range. Meanwhile, small caps, the Russell 2000 up about six tenths of a percent on the day, a little bit better of a finish in the trading range and also on the cusp of clearing short term highs. And the Dow, as mentioned, finishing slightly lower on the day, but still holding the gap up from last week.

2:32Ken Shreve:So, Ken, we had a gap up to kick things off, a little bit of a fade today. But is this still constructive at this point in your view? Yeah, I would say so. I would say so. It traded in a fairly tight range today for the NASDAQ. And I think when you look at the market of stocks today, there was a lot of really strong action underneath the surface today. So when you're kind of looking looking through screens of growth stocks today, there were there was a lot of a lot of positive action, a lot of stocks, you know, making making strong moves. Obviously, there were some some great earnings response responses that the Nasdaq was responding pretty, pretty well to for most of the session.

3:28So, you know, we ended with a gain of about a half a percent closed near the session low. But, you know, overall, I think it was a fairly positive session. The breadth on the NASDAQ exchange was pretty solid. It wasn't quite two to one positive, but it was decidedly positive with winners having a nice edge over decliner. So overall, I would call it positive. Obviously, you'd like to see a close up near highs. But again, just looking through the growth screens today, I thought and looking at our leaderboard model portfolio that Dave Chung and I managed, we saw a lot of good action among a lot of growth stocks that we have in that portfolio today.

4:22So, you know, from that perspective, we were pretty pleased with the action overall in growth stocks and a lot of semiconductor stocks today, which outperformed by a wide margin.

4:35Ken Shreve:Well, speaking of, why don't we go there and take a look at the SMH up about 2.1 % on the day. It also faded off of intraday highs and that 50-day looms large, Ken. Yeah, that's definitely a line in the sand. And when I was going through the news headlines this morning for IBD Live, it was exciting because the SMH was only about four or five points from its 50-day moving average. It was up near highs, up about 2.8%, 2.9 % in pre-market trading. We're thinking, boy, this has a chance of moving above its 50-day moving average today. But, you know, we know that SMH in the sharp downtrend that it was, that 50-day line is, you know, probably going to be a resistance level.

5:25And it got close to the 50-day moving average today. Never really made a meaningful effort to get above it. You know, and I think it got to within maybe five points of the 50-day line today. But, you know, didn't get there and, you know, closed off its highs. But still 2.1 % gain today. And overall, a lot of good action in the chip space overall today. So, you know, close off highs, but a solid percentage gain today.

5:56Ken Shreve:Okay. Let's move on. And any other thoughts on the indexes, Ken, before we look at a few more ETFs? Yeah, we'll just take a look at the S &P 500, see where that ended up today. Kind of the same situation, holding gains well, you know, ended off highs like the NASDAQ. But again, those four days of explosive gains just kind of trading sideways and holding gains very nicely, just like the NASDAQ, trading in a tight range, holding above the short-term supporting averages. You know, the message right along with the NASDAQ here showing a lot of strength and support after a very bullish week, you know, after a bullish week last week.

6:47So, you know, still still showing strength here and, you know, great earnings, great earnings today. And we've got some more after the close today that we'll get into. So, you know, kind of similar similar price action for the S &P today, just like like the NASDAQ. But again, kind of traded in a tight, tight range today and, you know, looks pretty reasonable to me.

7:12Ken Shreve:Yeah. And the Russell 2000 also looking reasonable, I think potentially actionable for some who want exposure there, clearing the last couple of days of highs. Perhaps a swing trader-esque setup here. Yeah, this was the one index that actually closed up near its high and held a decent gain all day. It was interesting because we had that inflation report before the open, which was very benign, just like the inflation report that we got last month in June, the Consumer Price Index. No surprise. Earlier today, bond yields were down ahead of the report. They were down. Ten-year yield was down about three basis points.

7:56It closed well off lows, but that really didn't affect small caps that much. Small caps held on to a gain. That 10-year yield was down three basis points. It closed, I think it closed pretty much, what was it down?

8:10Ken Shreve:Basically flat. Yeah, basically flat. So it was down sharply when that inflation data came out. It was mostly in line with expectations, but that yield closed off lows. Didn't really affect small caps that much, even though it pared losses. So good day for small caps. That closed IWM and Russell 2000 closed up near its high. Good solid day of outperformance for the Russell. Yeah. And we also want to take a brief look at software down two days in a row after a pretty sharp ascent, down eight-tenths of a percent on the day-to-day. And you had a couple of big names in this space taking some hits, Ken.

8:50Well, yeah, I was looking at, you know, Workday was down pretty sharply today. But boy, what a rally for Workday stock. You know, big, big, big rally for Workday. Big move above the 200-day moving average. And, you know, came down, tested the 10-day moving average today. So probably a fairly normal decline. You can see the volume today very, very light. So looks like a normal pullback here, test of support. App Lovin also down. So a lot of software stocks under pressure today, sort of broad-based weakness in the software sector. But again, AppLovin, obviously not a leader in the group. I'm Laura Thurow with Baird Private Wealth Management.

9:37Ken Shreve:You've been doing all the right things, saving, investing, building toward your goals. Healthcare can be a major expense today and an even greater one over time. Tools like long-term care insurance or a smart health savings account strategy can help protect what you've worked so hard to build. Learn more at BairdWealth.com slash WSJ Guidebook. Most software stocks under pressure today, many have been rallying. So just probably some profit taking in the group and money flowing into semiconductors today. So just looks like profit-taking after a pretty strong move for a lot of these software stocks.

10:21App-loving, notwithstanding.

10:23Ken Shreve:Yeah, exactly. And speaking of money flowing to chips, let's go to Credo. CRDO up 8.3 % on the day. A couple of sessions ago, getting back above its 50-day moving average. if you take that step back, Ken, this is a stock that's been forming a base after a nice move off lows from that March to June time period. Let's see the depth of the base here because we know that this is a high octane stock, right? So with an average true range of nearly 10%, not all too surprising to see the base depth here of 43%. That's a pretty big haircut. But if you are talking about a lot of these AI hardware related names coming under pressure.

11:07Ken Shreve:Not too surprising from that standpoint, but what is a positive development is to see where this stock is now. It has formed that right side of the base and it's getting closer and closer to those previous highs. Yeah. It's really, you know, almost an anomaly in the chip space at this point because there's still a lot of damage in this group. There are still a lot of stocks that are really entrenched below their 50-day moving averages after sharp sell-offs. A lot of stocks that have corrected much more sharply than Credo. But Credo is still a very compelling fundamental story in the chip group.

11:54We've mentioned this one before about connectivity solutions in data centers. They're known for their active electrical cables, which are basically specialized copper cables that connect these processors, thousands of processors that are in data centers. So these copper cables connect all the processors. And this is what Credo does, as well as Estera Labs. So these companies compete with each other. But, you know, Credo is going to be reporting earnings in early September, along with companies like HPE and NetApp. Early September is going to be busy for companies on these different fiscal years.

12:41So Credo is interesting, back up near highs and another very, very fast grower, just firmly implanted in the data center area. uh aehr which we're going to look at in a second also very entrenched in data center in the chip testing area so uh the credo's got a lot of a lot of potential here still a ways a few weeks away until they report earnings but you can see that the growth here is just spectacular and and we'll see setting up setting up nicely ahead of earnings and uh you know looks looks looks pretty solid here. So we'll keep an eye on this one as earnings approach.

13:22Ken Shreve:Yeah, I think that it would be great to see it tighten up, form some sort of handle here. I think aggressive traders probably use today as an entry point. We'll see if it can hold up above today's low, a gap there. And I think a handle would be great to see. But we do have to keep in mind that this is a high octane name that can move a lot. So buying it close to a 50-day or a 10-week can be ideal. Will it calm down enough before earnings? We'll have to see. Yeah. Yeah. This is definitely a volatile stock. I think position traders are probably going to kind of hold out and just kind of just watch how it sets up ahead of earnings and then maybe see what the options market is looking like as earnings approach and maybe consider an option trade or maybe just watch how it how it how it reacts to earnings and and then just and then just kind of watch how it trades post earnings and maybe see how it how it digests after earnings but we'll we'll see a great a great report the market is expecting great great numbers here and again as a stock kind of works its way up the right side of a base, sometimes it'll pause as it approaches that left side high and maybe form a handle.

14:47So setting up nicely here. And a lot of these AI data center type stocks, the expectations are high going into earnings, but we've seen some really great numbers so far from companies like this. So wouldn't be surprised to see a great report here. Yeah.

15:08Ken Shreve:Triple digit growth expected for both the top and bottom lines. Moving on, you mentioned AEHR, so let's go there. Speaking of high-octane stocks, this really is one. Look at the ATR here. If we thought Credo's was hot, this one is habanero ghost pepper level at nearly 16 % average true range. So a 10 % update today, you know, within that range. And we've seen just quite, this stock has doubled off the lows, Ken. Yes, yes. I just wanted to call it out. I mean, it's a much smaller company than Credo, but, you know, it's almost a$4 billion market cap here. So it's approaching a mid-cap stock here.

16:01But, you know, really compelling growth story here. It's a chip equipment testing company, so obviously not nearly the size of a LAM Research or a KLA or an ASML. However, they test chips, but they're really just involved in AI, data center, silicon photonics, these companies that go into data centers, optical transceivers, companies like Coherent and just the companies like Lumentum, companies that do the optical transceivers and the AEHR they test the chips that go into these transceivers so all of these data center hardware makers they're using AEHR to test the chips that go into these components that are in the data center so this company is just in the right industry at the right time so they're signing all sorts of deals the growth is the proof is in the putting.

17:14They're just positioned in the right industry, in the right business at the right time. The growth is really, really solid here. They're signing new contracts, it seems, almost every month and really like the growth trajectory here. But this is one where you probably want to start with a small position and see how it goes and kind of slowly build it up. It's a volatile stock, But the growth prospects are just really, really solid here. Fund sponsorship is excellent. So there are fund managers that are discovering the growth story here as well. But, you know, in a group that had really just got plastered by selling not that long ago to see a chip stock that's actually breaking out to new highs, that's, I think, something pretty, pretty special.

18:02So a name to keep an eye on. You know, do you want to buy a breakout in this type of market where there's hardly any chip stocks breaking out? Maybe you want to wait for a little pullback here after three strong up weeks in a row. It's probably not a bad strategy, but you do have a relative strength line with a blue dot. I mean, that's an exceptional sign of strength in this market. So good smaller name to watch in the chip equipment group. Just well positioned for growth here.

18:29Ken Shreve:Over 60 years, Medline has demonstrated a track record of delivering consistent growth. Today, Medline is proudly NASDAQ-listed and is the largest provider of medical surgical products and supply chain solutions serving all points of care. See how Medline makes health care run better at Medline.com. Good points all around, Ken. And let's go to ATRO with earnings out after the closing bell yesterday, which led to a 17 % move today, almost closing above a traditional entry, just shy of the 89 price level. But what a great day for this stock. Pretty incredible growth here, Ken. I feel like it's kind of rare to see an aerospace defense name with 2 ,000 % EPS growth.

19:21Yeah. Again, when we're talking about this market of stocks, we're seeing a lot of good action underneath the surface. There's just a lot of stocks out there that are acting right, a lot that are responding positively to earnings. We've heard a lot of good news about this second quarter earnings season. The earnings have been really, really strong, and we've seen a lot of great earnings in the aerospace and defense group. Again, Astronix is not a big company. We know the widely held names in the aerospace and defense group, but there's a lot of smaller companies that are doing great things. Astronix has been trending higher for quite some time.

20:00This is a company that does electronic systems, lighting, power supplies, that type of things for commercial aircraft. They do military platforms, corporate aviation, pretty spread out in the aviation industry, but smaller company, but in the process of breaking out of a base here, another stock with a really bullish relative strength line. But, you know, fundamentals are in line here as well. So great earnings growth and the growth trajectory looks pretty good here as well. So kind of serving a niche market here. Great earnings kind of closed. I don't know if it closed maybe just a little bit below the buy point today, but looking pretty good.

20:52Another good earnings report today.

20:54Ken Shreve:Okay. Okay. And speaking of earnings, we have more to look at out after the closing bell. A couple of highly anticipated names moving lower. Three, actually. Three that we wanted to cover. All moving lower, Ken. We'll start with Cisco, the most tame move that I'm seeing right now, down about 2.6%. It's forming the right side of the base. And for this, you know, really big old guard type name, I think it's had an impressive move this year, forming the right side of a new base. So, you know, seeing it down 2.6%, maybe it goes to form on a handle here, or who knows if it has an upside reversal by the time we have tomorrow's session.

21:46Ken Shreve:So a mild down reaction here for Cisco earnings. Yeah, setting up at a nice base ahead of the result, back above its 50-day moving average. A nice response three months ago when they reported earnings had a nice gap up. So, yeah, we'll have to see here. It was in a good setup ahead of earnings, But, you know, it was initially higher, I noticed, after they reported, but must have said something. Obviously, I don't think the conference call has started yet, but it should be starting soon. But it has turned lower here under some pressure here. So we'll have to pick apart the report here and see what they said here.

22:29But another company that has done a great job transforming itself used to be just a networking stock, but has really transitioned itself into kind of an AI major player in artificial intelligence and has done a great job, has kind of reinvented itself and is kind of back in growth mode. So we'll see what they had to say. And again, it may, depending on what they say in the conference call, it could still turn higher, but under some early pressure here. Mm-hmm.

23:02Ken Shreve:Also under pressure, Ken, is coherent, seeing shares down about 5 % right now. This is an AI stock that has also come a long way off of its lows after getting hit pretty hard, correcting 50%. It's now, as of today's close, less than 20 % off of its prior high. So that's a pretty big move up in not a lot of time. Volatile, though. This is a volatile name, and it's down 4%. Yeah, I just mentioned these optical transceivers in data centers. This is exactly what Coherent does. and a company like Amphenol, which is in the same industry group, another stock that is trading near highs. Electronic parts group is still filled with leaders and coherent, really nice rally off lows and back above the 50-day moving average and really, really great growth earnings and revenue growth here as well.

24:08Down 4%, so numbers were probably really, really good. But good enough because great top line and bottom line growth here. A lot of these companies in this group are still very well positioned for growth in the AI data center space, but sometimes the triple digit growth is sometimes not good enough. The market wants even more. So we'll see how it opens tomorrow.

24:37Ken Shreve:All right. And I saved the worst for last. Oh, the cerebrus. We were hoping for something good. Yeah. For the dinner plate chip, the giant dinner plate chip company. Yep. Yeah. Well, serving up a big decline in reaction, down 15%. It was up almost 12 % in the regular session today in anticipation of the report, but investors not liking the numbers here, Ken. Cerebris came public. It was not a great debut, but this company's got a great product that's known for their wafer scale engine, which is like this huge computer chip, which is the size of a dinner plate designed specifically for AI, artificial intelligence.

25:35And it is just this huge computer chip and, you know, can hold a lot of high bandwidth memory on the chip. And it's just great, great new technology, but obviously struggling here. So not a great debut at Corrected Sharply has been trying to rally back. And, boy, you've got good top line growth here as well. Not making money yet, but.

26:05Ken Shreve:Well, I think that was the issue. Yeah. From what I'm seeing, much wider than expected loss. Much wider than expected loss. Got good top line growth, but still bleeding a lot of red ink. Trying to rally ahead of earnings, but under a lot of pressure. So we'll see what this does to the chips tomorrow. Yeah, not good. We will. All right. Well, thanks, Ken, as always, for weighing in. Wish you had better news for us, Allie. I know. I hate to be the bearer of bad news, but it happens sometimes. All right. Thanks, Ken. And thanks, everyone, for tuning in. That's it from us for today. We will be back with more tomorrow morning on IABD Live.