Wolfspeed Technical Outlook After Last Thursday's Big Plunge – The Drop Continues

Here is the technical outlook for Wolfspeed Inc. WOLF for this week – this stock is finished! Hyperbole aside, despite the previous Thursday’s massive sell-off, this stock is continuing to set up on the short side. The chart is awful and from a speculation point of view, selling terrible charts will not always make you money, but on balance, it is the correct and only thing for a speculator to do. 

All signs are pointing to a move to old lows last seen in March 2020 at $34.00-$35.00. Considering that shares were last trading at $46.55, if that prognostication comes to pass, it will be a big trade. 

The catalyst here was disappointing Q2 guidance related to capacity and ramp issues for the company’s 200mm silicon wafer product, which is used in the EV and semiconductor industry. Prior to the latest setback, WOLF had already been in a steep downtrend due to news from Tesla TSLA in early March that the company would be cutting back on SiC inputs. 

Heading into las Thursday’s plunge, the fundamentals in the supply/demand for WOLF stock were poor, with the name falling from an intermediate top in the $87.00 area in early February, to roughly $56.00 heading into earnings. 

The price action in the name can be traced in part, to deteriorating business conditions and a real lack of visibility in terms of both capacity and ramping for 200mm as well as a murky outlook for end-demand. 

These headwinds had dragged the share price below all major moving averages prior to the latest big sell-off. Late in the day last Thursday, WOLF was sitting at fresh lows for the session, down around 21% to $45.58. On Friday, the stock bounced anemically, closing up 1.20% to close the week at $46.55 among a very strong market. Frankly, this was a gift for traders looking at this setup from the short side. 

Benzinga covered some of the commentary from Wall Street analysts last week that traders should also take into account. Oppenheimer downgraded the stock in the wake of poor Q2 guidance and Susquehanna cut its price target from $88.00 to $60.00. 

The takeaway from analysts at Oppenheimer, Susquehanna, and William Blair was all similar – essentially, the analysts like the long-term fundamentals in this name, but an overhang is likely to remain in the coming quarters related to WOLF’s execution – or lack thereof. 

Jed Dorsheimer at William Blair wrote in a client note that the delay in 200mm wafer supply is the “lower wafer output per furnace as Wolfspeed climbs the yield and learning curve.” 

Not to put words into the analyst community’s mouth, but the general consensus here is that Wolfspeed has a solid business with a bright outlook, but has eroded some of Wall Street’s confidence, lacks visibility, and comes with multiple uncertainty levers. This is the narrative that the market is pricing. 

From a speculative, technical, point-of-view WOLF has busted through all near-term support levels, and has done so on extremely elevated volume, and the price action suggests high conviction in dumping this name right now. Put another way, price finds itself in no-man’s land and the path of least resistance in the coming weeks would appear to be a move lower. 

In conclusion, WOLF is grappling with successive downside near-term surprises and developments, which coincides with very bearish price action and a completely broken chart. The company’s earnings report did nothing to dispel some of the uncertainty here, and one has to assume that the business and the stock may be particularly susceptible to further disappointments going forward.

Featured photo by Marek Szturc on Unsplash.