Here's a pretty good piece written by a fellow that I've been following for a couple of years, Mike Parness aka: Waxie.
Sunday, April 29, 2001 - REALITY vs. TRADER REALITY Posted Saturday, April 28, 2001, at: 9:36 AM by waxie
Below is an article from Forbes detailing what I've been
saying for a while, and what I pointed out on Bulls and Bears
last week.
It is the REALITY. And, as such, eventually it should win
out and send KLAC shares lower.
However, I am NOT currently short KLAC.
Why, you say? Because often times TRADER REALITY is different
than REALITY, well, REALITY!
Think about it, AMCC reported revenue of just over $100 MIL
for the quarter about a week ago.
The stock has a current market cap of about $9 BILLION.
Prjected over the full year, in an admitted slowing
envirnonment, regardless of what the GDP says,
and you get about $450 MIL in sales.
Thus, AMCC is trading at a ludicrous by any historical,
or otherwise, standard.
Couple this with the fact that AMCC is slated to earn
about 10 cents a share this year and you have a stock
trading at over 200 X's earnings, with a SLOWING growth
rate.
And yet, as a trader, I'd take AMCC long for short periods
and not think twice about it. OK, OK, maybe I'd think
1.5 times about it, but not twice!
Why?
Well, because the market is made up of TRADERS.
Thats all we have. Funds and Institutions are all traders
at heart.
Think about it. AMCC will eventually get to the $5 - $7
a share that its probably really worth (if that).
But, in the meantime, there will be some idiot analyst
who will give them an ungrade based on, yes, that magic
word TRADERS love to hear - POTENTIAL!
The market is the boy in the plastic bubble STILL because
of that one word.
I've said it before, many time, people are more scared to
miss the rallies, than they are to lose when we die.
As long as that perception exists, the market can,
and will bounce and extend rallies far longer than it should.
Obviously AMCC has some worth, no one is denying that,
but $9 BILLION on $450 MIL in sales, and slowing?
REALITY dictates that AMCC must at some point make its
way down to what its worth.
Trader Reality dictates that it could, and very well may
go to $30s before that happens.
If we got a really nice rally to 2500, then it could even
see $50s. As stupid as people would be to buy it at $50,
it could happen.
Bubbles have happened MANY times before in the market,
as long as there is ample money fed into the market, there
will always be bubbles.
The trick for us, as traders, if not worry so much about
the REALITY, but only about Trader Reality.
That means we look at the market in very small time frames
and we trade accordingly. We do not worry so much about
valuation - UNLESS, the overwhelming perception meets
the overwhelming reality. That's when we get short again
and ride these things to their inevitable death.
Right now, the perception is that the economy is getting better,
that the bottom is near, and that things are turning around.
The perception is that things are so bad, they have to get
better.
The perception is that the Fed will save the market.
The perception is that AMCC was once $100s and is now $22s,
so therefore since all those other perceptions are "true"
then AMCC may be a great buy here.
We, as traders, need to be aware of the perception of the market
and not worry so much about valuations...for the moment.
I suspect that once the Fed is out of bullets and we move past
the FOMC meeting, somewhere in that time frame we will
begin to go back to the perception that REALITY does count...
that the economy, though perhaps its stabilizing, doesn't
necessarily mean that KLAC or INTC, or AMCC will do more
business.
That just because they are off their highs, it doesn't mean
they can't go lower.
That the market doesn't always have to make new highs.
Until that happens, we are TRADERS on TRADER REALITY,
not on REALITY.
We need to be vigilant and not become Bears or Bulls,
but become better traders overall.
Of course BRCM will be $15 a share, it has to be simply
because they are going to earn 4 cents a share this
year and probably 10 cents next. They are losing customers
to competition, and they are giving away stock options
to garner business which will enevitably kill them.
But, that doesn't mean that BRCM can't go to $70 before
it goes back down.
Water seeks its own level, but at its own pace.
Unless we are to bcome that most dreaded thing - an investor,
we must not get caught up in REALITY.
Yes, I think BRCM will be $15, but we'll get it there
on OUR TERMS, but on anyone elses.
Right now we are on the verge of breaking out here either way.
2000 is key support for the Nasdaq and the DOW just went
GREEN on the year. 11,000 in a key resistence point on
it.
If the Nasdaq holds 2000 this week, with the FOMC coming up
in 2 1/2 weeks, that'll give us a potential rally into
it, as is the TREND.
If the DOW breaks through 11,000, it could test its all-time
high.
Please remember that you are a trader, and as such, we find
trading opportunities.
If we break out on the SOX early this week, we will take
some long more than likely.
Yes, even though KLAC is worth $20s, we will buy it long
in the $50s if the situtation presents itself.
One of my favorite movies of all-time is by Kurosawa, a Japanese
filmmaker.
Its called RASHAMON. The film is all about PERCEPTION.
What you and I perceive as reality doesn't matter if there
are more people in the market who have a different perception.
I submit to you all that...
Making money in the market is about knowing everyone ELSES
REALITY, not our own.
We'll see just what that NEAR TERM perception is soon enough, possibly
this week.
Lets just make sure we get on the right side of
that perception.
See ya on the other side,
WAXIE
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KLA-Tencor May Get Hit by Decline in Chip Demand, Forbes Says
San Jose, California, April 26 (Bloomberg) -- KLA-Tencor Corp., a maker of semiconductor-inspection tools, may get hurt by the decline in chip demand, Forbes magazine reported in its ``Streetwalker'' column, citing David Webb of Shaker Investments.
With personal computer sales lagging, chipmakers will be forced to cut back on capital spending for new equipment, Forbes said. Intel Corp., for instance, saw first-quarter sales fall 16 percent, Forbes said.
KLA-Tencor is trading at 24 times trailing earnings, a valuation it usually trades at when the chip cycle is strong, Forbes said, citing Webb. Inventories also have increased 75 percent from this time last year, Forbes said.
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