Scottish Mortage (SMT) share price slowly forms a risky pattern

May 08, 2024 09:33 PM AEST | By Invezz

Scottish Mortage (SMT) share price slowly forms a risky pattern — Image source: Invezz

Technology stocks are doing well

Scottish Mortgage’s stock performance happened as investors cheered the performance of technology companies. The benchmark Nasdaq 100 index has soared by about 70% from its lowest level this year. Most tech companies like Microsoft, Alphabet, Nvidia, and Amazon have all surged.

Scottish Mortgage is a big investor in publicly traded and private companies. According to its website, it owns some of the leading companies in the world like Nvidia, ASML, Amazon, MercadoLibre, and PDD Holdings. Its public companies have a combined market cap of over £10.3 billion.

It also has big stakes in many privately owned companies. The most notable holdings are companies like Stripe, ByteDance, Databricks, Epic Games, Thumbtack, Stripe, and SpaceX. Its private investments have a market cap of over £3 billion.

In theory, Scottish Mortgage has better features than popular ETFs like Invesco QQQ and iShares Technology Fund (ITW) because it owns both private and public companies. In this case, it can buy new companies like Stripe, hold them, and cash out when they go public.

The challenge, however, is that many of these companies are highly illiquid, meaning that it cannot sell its holdings when conditions worsen. That is what happened a few years ago as many public and private companies dropped.

The other risk is that finding the real valuation of a private company is not easy. We have seen this well with companies like Peloton and WeWork that collapsed after going public.

This explains why Scottish Mortgage usually trades at a discount to its net asset value. In this case, its total assets are estimated to have a valuation of over £14 billion against its market cap of £12.3 billion.

Scottish Mortgage has worked to narrow this discount. For example, it has launched a £1 billion share buyback, which is substantial for a firm valued at £12.3 billion.

Scottish Mortgage Share Price Analysis

SMT chart by TradingView

Turning to the daily chart, we see that the SMT stock price formed a golden cross pattern in December last year. This is a popular pattern that leads to more gains in the long term. It has remained above these averages throughout the year.

Scottish Mortgage’s stock has jumped above the 23.6% Fibonacci Retracement point, which is a positive sign. It also formed an inverse head and shoulders pattern, which is a popular bullish sign.

However, the stock has now formed a double-top pattern at 900p. In most cases, this is one of the most popular bearish patterns in the market.

Therefore, there is a likelihood that the stock will pull back soon. However, with central banks turning dovish, there is a likelihood that stocks will continue rising. If this happens, it will rise to the key resistance point at 1,000p, which also coincides with the 50% retracement point. This price is about 20% above the current level.

The post Scottish Mortage (SMT) share price slowly forms a risky pattern appeared first on Invezz

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