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Strategies & Market Trends : Steve's Channelling Thread -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (22584)	8/2/2001 12:27:29 AM
From: Alex MG	Respond to of 30051

Nice market summation, by Lance Lewis... KLAC reported last night, and basically said the same thing that they did a couple weeks ago. So, there was no real news there. In after hours trading, the semi equipment shares actually traded down off KLAC’s news. Then, with the SOX near its 200-day moving average on everybody’s charts, Merrill Lynch decided this morning that today was the day to come out and tout the entire semiconductor sector based on a macro economic call that the economy has bottomed. This caused an absolute explosion in the semiconductor shares with most gapping up between 4 and 5 percent. Like the rest of the market, the SOX traded up and then fell back near its open to give it a still hefty 5 percent gain. Merrill also emphasized that valuation on semi shares was not an issue, which I guess is good since most of the chips and chip equipment shares had already discounted a screaming recovery even before today’s rampjob. The prices of these securities are just silly even when you assume Merrill is right in saying that their businesses have “bottomed,” which is a bit premature since Merrill is assuming no further economic deterioration takes place, which I find unlikely. Two examples that were on the tout list today were analog chipmakers MXIM and LLTC that both trade at 15x sales. Elsewhere in chip land, INTC, which I understand was not on the tout list to be fair to Merrill, trades at 43x its 2002 estimate, while TXN trades at a whopping 94x its 2002 estimate. Now, high earnings multiples at troughs are to be expected, but these are a bit extreme. Chip bellwether INTC, for example, got down to 4x sales at the height of 1998 crisis (TXN saw 2x and both are currently at 7x), and that was when sales were still growing and we weren't staring a global recession in the face. For the first time ever this year, INTC’s sales will decline year over year by around 20 percent, and that’s assuming they get a hefty bounce in Q4. This is one of the big differences between coming out of a bubble and still being in it and simply correcting within the uptrend, as was the case in 1998 when the Fed took us to the final leg of the parabolic by giving the stock market and US economy one last fatal dose of crack. While the bubble is still intact and growing (as it was in 1998), sales and earnings keep expanding at a parabolic rate. Once the bubble has popped, however, substantial growth may not return again for a long time (as in Japan) and most certainly won’t be returning to the bubble's levels any time soon. That’s why these multiples are so ludicrous, and I won’t even get into how cyclical these businesses are and what sort of multiples they will probably eventually trade at. For right now, let’s just say that with sales likely to be stagnant even after we have “bottomed,” I think sub-1998 trough valuation levels will likely be seen sometime before the end of the year in these chip stocks. Outside the SOX, the valuation argument is even stronger. The NDX is trading at 75x next year’s estimate. There again, even assuming this is the fabled “bottom,” the assumption of growth implied in the prices of these securities just isn’t going to happen, and the difference between today’s levels and that reality is along way down, in many cases 50 percent or more. That’s enough about valuation I guess. There’s not a whole lot else to say about today’s action. Everything in tech was up but off its highs, which is a lot like what we saw yesterday. Still, the bulls have to be given credit since they were able to take out yesterday’s highs in the NASDAQ. Financials were mostly higher. The BKX rose touch, and the XBD rose 2 percent. GE slid another 2 percent to a new low for the move off the May peak. The Dow and S&P bumped their heads on yesterday’s highs, but the NASDAQ did manage to push higher off the strength in the chips. Today’s action appeared to be another reversal day, but intraday reversals don’t mean much if the next day sees a higher close as we did today. We’ll see what all the king’s horses and the king’s men can come up with for tomorrow in order to hold things together, but you can only upgrade semis and roll out Abby Cohen so many times. I still anticipate this rally to fail soon and break hard to the downside. But then again I was looking for that to possibly begin today after yesterday’s dismal trading, so that doesn’t mean much.

To: mishedlo who wrote (22584)	8/2/2001 7:27:30 AM
From: orkrious	Read Replies (1) \| Respond to of 30051

Man would I love to short this sucker at 40. Please mish, I lost enough yesterday. <G> Jay

To: mishedlo who wrote (22584)	8/2/2001 7:38:42 AM
From: Jerry Olson	Respond to of 30051

Mish PMCS has only just begun it's breakout yesterday..at 33..it's a triple top break...i would avoid this stock as a SS...in fact until we top out here..short is suicide... the SPX may break that downtrend line today at 1225, which would be very constructive...both the S&P & NQ"S have broken out here...on the daily candle charts... i fully expect the VIX index to break 20 and head toward 17/18...we'll sell off there for sure... several short term P&F indicators have turned up into X's...so for now long is the way to trade...I alerted everyone last Weds evening just before the close..that the double bottom was in, and to go heavily long the semis then... sellers have moved aside for now... hang tough, fighting any trend makes no sense at all.. best OJ

To: mishedlo who wrote (22584)	8/2/2001 8:36:44 AM
From: Zeev Hed	Read Replies (4) \| Respond to of 30051

Mish, do you have any longs in case this market explodes up here instead of turning back? It seems quite evident that this rally will extend beyond the Maginot line, I don't know if it will close there or not, but having few longs in case it roars ahead, would be "prudent" (and no options, the market can turn back as fast as it turned up, it has done that some 5 times in the last three months). At 62% cash, I am personally "under exposed', so I have added the quintet here in premarket reducin cash to just above 50%. (qlgc not yet in I a trying to get $42.5) Zeev