Wherefore Art Thou, Semis?
December 9, 2004
I am remembering now why I tend to shy away from talking about individual stocks. After making some judgment call, even a bold prediction, I feel obligated to make updates as conditions change. The desire to be right is a natural one, but I instead have a desire to "caveat" as much as possible!
Conditions are changing in the semiconductor patch. For the entire year, the semiconductor index, the SOX, has severely underperformed the NASDAQ. A very odd set of circumstances that has not happened in suppose a very long time….certainly not since the bubble got hot in the late 90s. The most severe part of this divergence has occurred since bottoms in August. The SOX is up about 20% since bottoming in September and is now struggling to prove that it deserves to stay broken away from the steep downtrend of 2004. Even more importantly, the SOX has been putting up a valiant fight with its 200 DMA. The drama is shown below.
Part of the recent confusion is that folks cannot seem to make up their mind on what to do with the various points and counter-points coming from various semiconductor companies. Intel raises guidance, and the market cheers. Cymer (CYMI), Xilinx (XLNX), and Altera (ALTR) issue various warnings, and the market wrings its hands burdened with woe. Mid-day, National Semiconductor says things aren't great but aren't bad either, and a sigh of relief goes out. We can only imagine how hard it is to establish a sustained move with this kind of churn!
Speaking of Intel, I cannot talk about semis without another update to follow-up on the last two. You are going to think I am obsessed with this bad boy, but the moves in this stock for 2004 have quite instructional. During the last review, I mused about whether the gap from the mid-quarter update would be filled. Sure enough, it was filled and then some. Now, Intel is well within the price range it churned before the update. Certainly, it may have found support at the lower Bollinger Band and the 50DMA, but the way in which it has come back down to this level puts Intel in a precarious position. Why is that? Think of the psychology of the folks that have been buying and selling Intel in the past week. Buyers right after the pop are now sitting on 5-7% losses and are nervously watching these support levels. They can also see easily that Intel has now failed to break resistance three times and has quickly rejected the cheer from last week's good news. This calls into question whether that news was really all that good. Finally, the put/call ratio is at a bullish extreme of 0.50 and the December options are even more crowded with bulls. The stock is now in need of a new catalyst but such a thing is not likely until earnings are reported in January. Certainly December options expiration next week is not likely to be kind to the folks crowded in at the $22.50 strike price. The folks at the $25 strike price can forget about it. All of this makes for some sleepless nights for the short-term viewers. The chart below shows some of the drama that is worrying the bulls now.