Schaeffer's Midday Sector Update: Drilling Down on Semiconductors
The semiconductor sector has been particularly weak recently, exhibiting
poor price action since mid-January, while suffering along with the
broader Nasdaq Composite (COMP). Since registering an intermediate-term
peak on January 12, the Philadelphia Semiconductor Index (SOX-475.17) has
lost 15 percent. Over this same time period, the COMP gave back just 4.9
percent. So as you can see, the SOX has been a dramatic relative-strength
laggard recently, despite the particularly strong earnings report from
Motorola (MOT: sentiment, chart, options) .
The semiconductor sector's Schaeffer's put/call open interest ratio (SOIR)
has languished over this same time frame. Options speculators are failing
to give any definitive response to the weak price action. We would
interpret this as complacent behavior. Currently, the SOIR stands at 0.65
landing in the 32nd percentile of the past year's worth of readings,
meaning that this ratio is higher than 68 percent of all those taken over
the past year. We would typically expect to see some shift in the put/call
ratio in response to this weak price action - an increase in the SOX's put
open interest would also be particularly encouraging.
Another indicator of complacency lies in the dramatically declining short
interest for the sector. The number of shares sold short has fallen from a
high of 534 million to its current perch at 370 million shares. Likewise,
the short-interest ratio on the SOX stands at a weak 2.05 days, meaning
that these bearish positions could be covered in roughly two days at the
index's average daily trading volume. We would like to see a short-
interest ratio of more than five given the recent weakness in the SOX.
Wall Street analysts are also optimistic toward the semiconductor sector.
Of the 337 total analyst's rankings, 56 percent of them are "buys," 37
percent are "holds," and six percent are "sell" ratings. This optimism
from the analyst community is another definitive negative for the sector
going forward, particularly in light of the weak price action. |
