Analysis: MRVL NVDA CSCO

After you receive this Alert, we will sell all 1,750 shares of Marvell Technology  (MRVL) at or near $57.00. This will close out the portfolio's position in MRVL shares, which returned more than 100% since being added to the portfolio in August 2019.

We are using today's market strength to further reduce the portfolio's overall chip exposure, and doing so with Marvell for a few reasons. During the current earnings season we've had a number of reminders about the impact China's zero Covid policy is having on both supply chains and demand for a variety of products, including chips. Nvidia (NVDA) clearly pointed to that last night with its July quarter guidance for Data Center, but as we pointed out that business is still expected to be up significantly year over year in the current quarter.

Even though Data Center is Marvell's largest end market that is roughly balanced out by its exposure to Enterprise Networking (20% of sales) and Carrier Infrastructure (18% of sales). We'd also remind members that Cisco Systems  (CSCO) recently cut its guidance for the current quarter to $12.4 billion-$13.0 billion vs. the $13.9 billion consensus forecast.

At the midpoint of that guidance, Cisco's revenue for the quarter would be down 3% year over year or $400 million, which suggests Marvell's Enterprise and Carrier Infrastructure revenue could mute the year-over-year growth for its Data Center revenue leading to weaker-than-expected top-line and bottom-line guidance. As we pointed out when we removed Cisco from the portfolio, even when China's manufacturing rebound begins odds are there will be challenges associated with that re-opening and port congestion that will continue to hobble supply chains.

What About the Technicals?

In terms of the technicals, Marvell has fallen sharply over the past several months, with a series of lower highs and lower lows that captures the essence of the semiconductor group -- mired in a bear trend, While there will be strong up moves like we see today, these bear market rallies are spots to unload underperforming stocks.

Marvell's weekly chart, below, has all the characteristics and a potentially lower target in the low $40s. The recent break of $60 was troublesome but last week saw this name pull down sharply on stronger turnover. That is considered distribution -- big money selling the stock. 

https://share.trendspider.com/chart/MRVL/4669n8pvqg

The daily Chaikin chart, below, is "very bearish" (top left corner). The indicators are extreme red, telling us even a rally is likely to be sold. We don't need to ride through that, however. The power gauge is not often wrong, the technical condition here is tenuous at best.

As we make the trade, we'll place MRVL shares in the AAP Bullpen.

(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)

At the time of publication, Action Alerts PLUS was long MRVL and NVDA.