I'm out. Sold all my AMAT at 37 7/16.
I've posted repeatedly that I intended to ride out this downturn fully invested, and add more on downturns. However, the weight of accumulated evidence now makes me much more comfortable sitting with BB, on the sidelines with cash. I'm convinced that AMAT will go down (90% probability) from here, because:
1. TA: the chart shows strong resistance in the 38-40 range. Every rally from Nov. 1997 on has failed in this range.
2. KLIC is a bellweather for the group, it was the first to fall off the cliff in 9/97, and it has shown no strength.
3. I don't buy this circular reasoning: stocks will go up because people are pouring money into the market. People are pouring money into the market because..... stocks keep going up.
4. The semi-equips have rallied on the false belief that the East Asian crisis is over. In fact, the only countries without problems are Singapore and Taiwan, because they never got over-extended. Of the remaining countries, the only one that is realisticly dealing with their problems is S. Korea. Everyone else (China, Japan, Indonesia, Malaysia, etc) is still in denial. They are still trying the short-term-bandaid-on-a-broken-bone-painless-solution-creative-accounting methods. It's not a liquidity crisis, it's a solvency crisis. Japan is going to have to do what Korea is doing, before they recover. China is going to have to devalue the currency, liquidate thousands of large banks and companies with negative net worth, and accept much higher unemployment. These countries will only claw their way back to solvency if the U.S. accepts a flood of cheap imports. This in turn means that our competing industries will have no pricing power while wages rise, which means lower margins and profits. The key point: these things haven't happened yet. And the reason AMAT is at 37, instead of 27, is because a lot of people are hoping it won't happen, or it will happen but will all be fixed this year.
5. The market seems to accept that 1998 will be bad, but is anticipating a great 1999. This is looking less secure, as the 300 mm transition has slipped. In any case, even if the recovery does happen in 1999, there is still time to buy back, at a much lower price. AMAT seems to be in a trading range of 33-40, or perhaps 27-40. I am 90% certain I will get another chance to buy at 33 again, by August, and 50% certain of getting 27 again. So, I'll begin buying at 33, but not be fully invested till 27. |
