re: "When will it hit its low ?"
This is a much more interesting question than "what will AMAT hit tomorrow ?" At the beginning of this year, I posted several long posts giving my reasons why I thought the stock would bottom in the summer of 98 (at about 22), then rebound and end the year at about 40. I now think this is too optimistic.
1. As posts by Justa have shown, AMAT stock price tends to track with total semi-equip orders (3M moving average), at least during downturns. I now think this is a better indicator than the BTB. So, when will orders trend up? AMAT is by far the biggest company in the industry, and they just warned that they expect orders will be down through the end of 98. They just pre-announced for two quarters. The earliest we can expect to see an uptick in industry or AMAT orders is early 1999. The May uptick in orders is just noise in the signal, confusing some people. The downtrend continues.
2. I don't see any evidence that semi companies are regaining pricing power. Weakness in margins is still spreading, to areas (Taiwan) and sectors (DSP) that had previously been strong. The Japanese have picked up the gauntlet that Micron threw down, ensuring overcapacity in DRAMs will worsen (yes, it can get worse) before it gets better.
3. No capitulation yet. We may move from the 3d to the 4th stage of despair tomorrow, or it may take a few more months.
4. Analysts are still recommending the stock. 3/4 of them still have a strong buy or buy. The flurry of recommendations,right before the company warned, was really funny. This is an excellent indication that they have further to fall.
5. INTC bottomed in January 1996, and then trended up. AMAT bottomed 6 months later. We may have seen a bottom in INTC (and the other semis) in early June 1998, which would give end-of-98 as a bottom for AMAT (and the other semi-equips). That is, if the same pattern holds, and if that really was the bottom for INTC. On the other hand, a lot of people are predicting another summer downturn in semis, and no lasting upturn till fall. That would make the recent INTC move from 65 to 80 a false rally. I'm currently clueless on this, so I'll just let the market tell me.
6. I will not be buying on monday, no matter what the price. I still see no hurry to buy into the sector. If we set a new 52W low, then we need to establish a base before I buy. If we bounce at 26, then the stock is still overvalued, and Mr. Market's mood needs to swing further (manic to depressed). Since mid-May, when we touched 40 and started down, a lot of people have said "now it's a good price, I'm in", and they've all caught a falling knife. I'll let the market tell me, because I really have no idea where and when the bottom is. Yes, I know I'm risking missing the bottom, but I'd rather buy too late than too early, especially since I intend to buy a lot of LEAPs. |
