My stance today:
I see:
1. a U-shaped downturn. That is, I don't foresee the 1998-type V-shaped downturn (straight down and straight up). The 1998 downturn was fixed quickly by governments/IMF/world bank. It was due to an abrupt shutoff of capital, a liquidity panic. Today's downturn is due to a sharp falloff in end-user demand, which is working its way up the supply chain. There is no quick fix for this. And I also don't see a L-shape (Japan since 1989, U.S. in 1930s). There is a fundamental strength in in the U.S. economy today (in spite of debt levels and trade deficit) that makes a decade-long downturn very unlikely. If that scenario becomes widely believed, I'll take that as a sign of a bottom.
2. Next earnings season will be as bad as this one: missing/warning/no visibility. After that, the Fed cuts will start to take effect.
3. For the next 3 months, the techs will continue to be in a bear market. Rising chip inventories, falling profits, will put a lot of pressure on semis to continue cutting capex. I think there is a 50:50 chance Intel may reduce (or delay) their capex. Yes, I know they recently reiterated that number. The day they cut capex forecasts may be capitulation in the semi-equips.
4. I think the recent strength in semi-equips , compared to other techs, is because we haven't yet reached capitulation, not because investors are "looking accross the valley".
Mistakes I've made in the past, that I am going to try not to repeat:
1. thinking I know where the bottom will be: in 1996, I guessed too high, and was fully invested long before the low. In 1998, I guessed too low, and only got 200 LEAPs (I had intended buying much more). So, I need a plan that only depends on knowing very approximately where the bottom is. I think there is a high probability of retesting the previous lows (34); beyond that, I have no idea.
2. selling too early. I sold half my LEAPs in January 1999, for a quick triple. I would have done much better to hold them all to Jan. 2000. This time, I hold everything at least till I have long-term cap gains. I'm thiking around 100 as a target price.
My plan, for now:
1. short at 49
2. stop-loss at 55
3. cover at 41
4. begin to buy 2003 50s (calls), when the stock hits 35. If we bounce there, forming a double bottom, double up.
5. Buy in 5-point increments on any further 5-point decline in the stock.
6. Load up, if there are 2 consecutive increases in bookings, because the trough is past. |
