Shares in Chip Design Giant Arm Holdings Fall After Downgrade
Shares in chip design giant Arm Holdings (ARM) tumbled more than 5% on Monday after receiving a downgrade from HSBC, accelerating their retreat from a record high earlier this month. The investment bank cited short-term downside earnings risk due to a potential slowdown in Android smartphone momentum and an easing artificial intelligence (AI) narrative, two key markets for UK-based Arm. HSBC also raised valuation concerns, noting that the company’s stock trades at a significant premium relative to its large-cap semiconductor peers.
Arm shares fell 5.1% during Monday’s regular session and lost another 0.8% in after-hours trading. The stock has retraced about 24% from its record close earlier this month, although the move has occurred on relatively light trading volume. This indicates that the shares may be undergoing a pullback rather than a longer-term reversal.
Technical Analysis and Key Support Levels
Investors should monitor three key support levels amid the weakness in Arm shares. The first level to watch is around $145. If the bulls can reclaim this area and the 50-day moving average in upcoming trading sessions, it could indicate a potential bear trap. A decisive breakdown below this level, however, could see a decline to $117, where the price may find support from a horizontal line connecting a series of comparable trading levels between February and May.
A deeper correction could open the door for a possible retest of lower support around $79. This level is significant as it represents two prominent price peaks that formed just prior to the stock’s breakaway gap in early February. When monitoring these levels, it is also important to keep an eye on the relative strength index (RSI). An oversold reading at the same time increases the chances that the stock may be ready for a bounce or to continue its uptrend.
Price Target if Uptrend Resumes
If Arm shares resume their move higher, investors can forecast a potential upside target using a bars pattern. By transporting the bars comprising the stock’s trending move between late April and early July to Monday’s low, a price target of around $275 is projected.
Conclusion
Shares in Arm Holdings have experienced a significant decline after receiving a downgrade from HSBC. The stock has retraced about 24% from its record close earlier this month, but this pullback may be temporary rather than a longer-term reversal. Investors should monitor key support levels, including $145, $117, and $79, to gauge the stock’s potential for a rebound. If the uptrend resumes, a price target of around $275 is projected. However, it is important to consider the overall market conditions and the relative strength index (RSI) when making investment decisions.
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Source: Investopedia
