tinkershaw: Addendum re Q 2003 LEAPS (with a bit of analysis) frm "Buy Range"
To: Benjamin Garrett who wrote (76207)
From: Jacob Snyder Tuesday, Jul 11, 2000 4:30 PM ET
Reply # of 76245
looking at the chart since the high:
siliconinvestor.com.
At first glance, it looks ugly. After a closer analysis, however, it looks even uglier.
1. We have now given back the entire 9/99 to 1/00 quadruple. Everyone who bought in the last 9 months is underwater. This is important, because I think they are "weak hands", and the stock will not find a bottom till they are all out, involuntarily or in despair. Lots more shares have to trade, at these or lower prices. Lots of momentum guessers still desperately holding on, daily calculating how far they are from a margin call.
2. This stock has tremendous downward momentum. I was willing to buy the stock at 60, I thought that was a reasonable valuation, and would give me an excellent longterm return if I bought at that level and held for years. I still think that. But, I'm beginning to think that this stock is going to overshoot on the downside, just as absurdly as we recently overshot on the upside of any reasonable valuation. I followed the semi-equips daily, during the 1996 and 1998 downturns, and QCOM looks even more volatile, with as much risk, and as much potential.
3. The lower the stock goes, the more willing I am to buy 2003 LEAPs instead of stock. At a price of 40, the stock will almost quadruple to my guess/rough-estimate of 150 by January 2003. At those levels, the (very expensive) LEAPs should do as well (and potentially much better) than the stock. I'm not willing to sell puts, because I want to be in control of when and how much I am exposed to QCOM.
4. Stairstep pattern: from the high of 200, the stock has dropped abruptly 4 times. After the first 3 drops (the 4th is ongoing), the stock found temporary support at about 125, 100, and 60. That represents drops of 37%, 20%, 40%. Finding even those temporary supports required high volume days. My guess is this 4th drop is the last. A drop of 30% (roughly the size of previous drops) from 60 (last temp. support), gives a price of 42. A drop of only 20% (only!), which is the smallest previous stairstep, gives a price of 48.
5. Volume: support at 60 held on 5/30 and 6/15. On those days, over 50M shares traded. Since then, we haven't had any 50M+ share-days. I'm thinking we need a 50M+ day, as a signal that buyers are stepping in. I think it is guaranteed that the supply of sellers will continue, in intermittent waves. It's a chicken-and-egg problem: the supply of sellers won't decline until the stock stops going down, and those sellers keep on driving the price down. This vicious cycle will be broken when a new supply of buyers meets the ongoing supply of sellers. And that supply of buyers must be large, in order to be effective. So, we need a huge volume day, and it hasn't happened yet.
6. sentiment: A lot of FUD last week was countered by some anti-FUD news over the weekend. And the market ignored the anti-FUD. That is, good news continues to be ignored. That signals the downturn will continue. Sentiment has not turned. It will take a very nimble investor, watching the stock daily (or hourly), to sense when sentiment is turning. As I said earlier, I think sentiment will turn very abruptly.
7. I had made my first purchase at 60, when it looked like that was support. I sold at 61 when that support failed. Then, I placed limit orders at 50 and 45. But I have now cancelled them, and am just watching closely. I'll jump in with a large purchase, when we have a big-volume day. If the stock goes up on good news, instead of ignoring it, then I'll know I missed the bottom, and I'll jump in then. An average cost basis of 40 (as opposed to 60) would make a huge difference in my longterm returns. |
