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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Return to Sender who wrote (43116)	1/30/2009 7:35:33 AM
From: Pam	2 Recommendations Respond to of 95572

You will not see that kind of volume coming off the bottom. The bottom will come after sellers have been exhausted. At the same time buyers will be even more nervous than I am now. I didn't say we will have that kind of volume and breadth on the day of bottom. Bottoms cannot be precisely predicted. They can only be confirmed after the fact. When we have a day with 9:1 gainers to losers with heavy volume, at least 2x, if not 3x, then it will be a confirmation that we have a bottom in place for the current downturn. We will see a 9:1 upside day. We will have higher than average volume but what you are describing is the kind of volume seen during capitulation instead of at market bottoms. Well, that would be the day when the market wildly goes down on heavy volume and reverses course intraday and closes significantly positive for the day! Last of the small investor longs get capitulated and there is fresh surge of money that drives the market up towards the close. This is followed up with another couple of days of positive upward movements. I just looked at weekly charts for LRCX and WFR and they both look awful. Not a single up week on higher than average volume despite the fact they are still above bottoms formed a while back. Both of these stocks have had a long period of prosperity and now they are in a down cycle for very specific reasons. LRCX: LRCX had a peak in 1995, 2000 and 2007 and bottomed in 1998 and 2002. This down cycle began in mid-2007 and has another couple of quarters to go where it will bottom out. This has to be viewed in conjunction with fundamentals i.e. the amount of money that has been spent on fab capacity over the last 5 years and the health of memory makers, foundry and logic folks. Memory makers have lost money as an industry for the last 5 years if you add-up their profits and losses of all participants and further purchases are unlikely until they make some money by growing into excess capacity that is already in place. Most of the players have no cash and credit markets are unlikely to improve over the next couple of quarters that they will be able to raise money for a losing business! WFR: Polysilicon industry was badly hurt after the 2000 crash and they did not invest much to expand capacity for 4 years! Then solar panel industry had a rapid growth phase and based on bullish forecasts from the solar industry, also helped by a long period of high oil prices and other commodity prices and government subsidies in Germany and Spain, existing and new players went on massive expansion plans to boost their polysilicon output. This capacity is just starting to come online and will get a lot worse as we get into 2010. Now the semiconductor industry is in oversupply and solar industry has slowed down and the manufacturers of polysilicon are stuck with excessive capacity. Polysilicon prices are crashing and positive RoI projects will soon become loss generating projects. The other problem is the supply chain. PV panel makers are not equipped to handle such a massive influx of polysilicon and at the front-end it is getting harder to sell panels that fast because of financing issues and end of subsidy! Basically, there is no place for excess supplies to hide other than to shutdown production and/or dump at losses down the road. Lowest cost producers will drive down the price below cost for most players. Typical commodity play! Some people have a different opinion about both these companies but it is my opinion that both of these stocks are dead money for next several quarters and there is money to be made with every mini rally they get! Where the danger lies is in believing these stocks will move independent of the SMH/SOX. This sector looks a whole lot better than the financial sector. Note the general trend is lower volume but the up weeks are showing higher volume. I am sure they will move with the sector initially, but eventually companies with improving fundamentals will move away and these will be range bound until their fundamentals improve. Semiconductor is acting a little better than the financial industry because they have taken the bold step of cutting back on output despite the risk of losing market share and unfavorable impact to their unit costs from underutilization of fabs. Most players B/S had become so weak that they had no choice but to focus on survival, than anything else! Be careful to only short the rallies with small positions. I have seen more than one great trader flame out by stubbornly citing poor fundamentals while shorting positions way too big to manage when the market moved against them. At present, I have a market neutral portfolio with a slight bias towards long. As the new stimulus plan gets closer to approval, I will reevaluate my stance and make adjustments.