Wherefore
Art Thou, Semis?
By Duru
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.
