Trading Blueprint for Marvell Technology (MRVL) Stock

Semiconductor maker Marvell Technology Group (NASDAQ: MRVL) has been positioning itself as a key player in the global deployment of 5G networks underscored by the Feb. 2019 partnership extension with Samsung. With an IP portfolio of over 10,000 patents, the company is expanding its penetration into data centers, security and 5G applications including Internet of Things (IoT), connected and autonomous automobiles and big data networks. Shares had solid momentum hitting 52-week highs of 28.86 on Jan. 17, 2020 on the frothy positive sentiment from the Phase One China trade deal, only to collapse close to 52-week lows in the recent plunge in the S&P 500 (NYSEARCA: SPY) on the spread of coronavirus and its disruption of global supply chains.

On Feb. 28, 20202, analysts at Oppenheimer and Deutsche Bank both made preemptive estimate cuts for MRVL revenue and earnings forecasts to accommodate fallout from coronavirus disruptions to supply chains. Oppenheimer predicts a (-5%) drop in revenues while Deutsche Bank reduced sales estimates by (-4%), both cutting EPS guidance to 0.12 and 0.11, respectively. The double downgrades collapsed shares of MRVL to 19.46 near 52-week low territory before a rebound with benchmark indexes.   

Earnings Catalyst

MRVL reports Q4 Fiscal Year 2020 earnings post-market on Weds. March 4, 2020, followed by the 4:30 pm EST conference call. Consensus analyst estimates are for 0.16-EPS profit on revenues of $710.4 million. With operations located throughout the major geographies that are affected by coronavirus including China, Japan and South Korea, investors are bracing potential downside revisions to forward guidance. Amid the recent analyst downgrades, market sell-off and sector turmoil from coronavirus supply chain disruption, the bar is set very low heading into earnings. Management would need to calm investors with an upbeat narrative highlighting that the supply chain disruption is cause for opportunities to be pushed forward, not necessarily canceled bolstering optimism for a 2^nd half recovery.

Rifle Chart Technical Analysis Trajectories: Longer-Term

We use the rifle charts on wider time frames to lay out the playing field suitable for swing traders and investors. The monthly stochastic formed a bearish mini inverse pup with a falling 5-period MA resistance at 24.04 Fibonacci (fib) level and 15-pd MA near the 23.52 fib. These are the two key upside resistance levels that MRVL shares need to break and base above to have any chance at reversing the weekly and daily downtrends. The velocity of the extreme reversal in sentiment for the semiconductor sector is almost unprecedented but correlated to the SPY volatility. The daily chart is triggered a potential stochastic cross up and market structure low (MSL) buy trigger above 21.98 heading into the earnings release. While the bar is set low, a pre-emptive bounce back to the two key aforementioned resistance levels at 24.04 and 23.52 may stifle further upside unless the narrative can improve sentiment in the sector.

Sympathy Stocks:

MRVL has positive correlation within the semiconductor group of stocks concentrated on storage technology and 5G integration. The larger the gap and follow through for MRVL shares, the deeper the positive correlation will spread amongst peer stocks. The closest sympathy stocks are Micron Technology (NASDAQ: MU) , Western Digital (NASDAQ: WDC) , Seagate Technology (NASDAQ: STX) and Advanced Micro Devices (NASDAQ: AMD) .

Trading Game Plan for Earnings Gap:

This information is accommodative to intraday and short-term traders looking to play the earnings gap.   With a post-market earnings release immediately followed by the conference call at 4:30 pm EST. Only the nimblest traders should even consider hitting the immediate reaction on the post-market release. If MRVL gaps down over 10-percent on the initial reaction, a reversion bounce could set-up heading into the 4:30 am EST conference call. Nimble post-market traders can scalp the price gap reversion levels, but most should wait for the morning session off the opening bell. Traders can expect scalps ranging from 0.25 to 0.75 in the first 20-minutes as ranges and spreads eventually contract. MRVL is a thick stock which ensures lots of liquidity, but price moves can get tight very quickly. Reversion scalps off the key price inflections levels can be played for the second gap reaction then shift focus to the third reaction trend move.

The gap price reversion levels for the upside price gaps are: 23.52 super fib/weekly 5-pd MA, 24.04 fib/monthly 5-pd ma, 24.79 fib/sticky 5s zone and 25.23 fib.

Downside gap reversion price levels are: 20.62 fib/sticky 5s zone, 20.10 fib, 19.46 fib/sticky 5s zone and 18.56 fib. If MRVL forms a greater than 10-percent gap up or down, then consider trading sympathy action on MU, WDC, STX and AMD after confirming positive correlation.