most have already seen this but in case some people haven't.
11:50 ET ******
Semiconductor Watch : The Philadelphia Semiconductor Index (i.e. SOX Index)
has surged as much as 14% in the past week, and once again, it is flirting with its
200-day moving average (614.77), having come within 3 points of it today. For a
brief time earlier this month, it looked as if the SOX Index was on the verge of
something big as it rode a wave of investor enthusiasm right through its 200-day
moving average-- a level that has proven to be a formidable resistance point
since May. Like most moves in the technology sector, though, that move proved
to be a false breakout as it wasn't long before the SOX started to roll over and fell
back below its 200-day moving average. When it did, investor disappointment set
in, and selling efforts accelerated. In fact, the SOX has spent the majority of
August on the defensive, having dropped 18.4% from its highs on August 2 to its
lows on August 21. Its fortunes have changed in the past week, however, as
traders/investors have returned to the stocks, emboldened by anecdotal evidence
that has suggested the worst of times are behind the industry. Specifically, the
market drew most of its encouragement from the latest book-to-bill report from
SEMI, a reassuring mid-quarter update from TriQuint Semi (TQNT), an
acknowledgment from Cisco (CSCO) that it saw signs of stabilization in its
business, and just this morning, a report from Texas Instruments (TXN) that it is
beginning to see improvement in the wireless space-- albeit against a backdrop
of weak technology spending. The latter disclaimer, frankly, is exactly why the
chip-related stocks have trouble sustaining their rallies as there is no evidence to
suggest a meaningful pickup in end demand will be seen anytime soon.
Nonetheless, many of the stocks are priced in a manner that reflects a recovery in
end demand that rivals levels seen in the late-90s. TXN, for instance, trades at
229x est. FY01 earnings, and for those who say the market is really bypassing
FY01 and looking to FY02, bear in mind that TXN trades at 111x est. FY02
earnings. Of course, anyone can (and will) rationalize a valuation argument, but in
Briefing.com's estimation, caution is still warranted as there is a disconnect
between valuations, industry fundamentals, and investor expectations. Talk of
stabilization should be enough to keep investors interested in the sector, but until
there are clear signs of a notable pickup in end demand, the SOX Index should
have a hard time making a substantive, and sustained, break of its 200-day
moving average as lofty valuations are apt to impede its forward progress.--
Patrick J. O'Hare, Briefing.com |
