Yes, I meant that secondaries might indicate a peak in sector stock prices. As you point out, the stock price peak precedes any peak in company operations.
Last cycle, prices peaked in the late summer of 1997, during a state of euphoria when the only hint of forthcoming Asian Flu was a financial crisis in Thailand. Companies in the semi-equip sector saw no sign of the trouble coming at that time. Even after stocks had begun falling, there was no hint of a bookings decline. October 21, 1997, after MTSN and all the other stocks had fallen significantly, the CEO of MTSN, whom I believe to be straightforward, said in a cc that "1998 will be a great year for Mattson Technologies." He really believed it. Only in the next month did companies start to see signs of bookings trouble developing throughout Asia, and it was still longer before a reversal in orders showed up in places like SEMI's monthly bookings report. Of course 1998 turned out to be a really lousy year to own semi-equips, unless you happened to buy in October, at the bottom of the price cycle, when everyone was full of doom and gloom.
One example does not make a rule, so I don't have a lot of confidence that the present rash of secondaries signals a sector price top, the way it did in 1997. OTOH, I'm not aware of any other indicator to use. Certainly it's impossible to look for the really obscure signs, like trouble in Thailand, that marked the beginning of the last price plunge in the sector.
As a precaution, I've lightened up a little in the sector. If I had more conviction in the secondaries as an indicator, I would lighten up a lot more. |
