Yep semiconductors outperformed on Monday -- with MRVL up, TSRA up, CY barely down, QCOM flat and the SMH actually up (obviously just a small sample). Either everyone was reacting to Marvel's results or perhaps the sell off hurt stocks that traders own -- energy was hit pretty good as opposed to stocks that have already been sold like the semi's.
If the recovery stays strong as ECRI says it will, then the semi's will be strong performers -- its just a matter of time. I linked in a story by Bob Faulkner about semi inventories last time -- he also has a nice write up on CY -- about the secular story of the PSoC and how this should drive strong revenue growth over the next few years. It sure looks like a good story to me. They have almost $2 a share in cash and I think they could earn closer to .60 next year vs. the consensus in the mid to high .40's due to higher revenues then currently forecast (which would also translate into higher gross margins than forecast).
So we are seeing a bigger pull back but will it be worse than our typical 3-5%? Sentiment is hard to get a read on -- Barrons' reported a few measures were near peak levels and a blogger that I read (see abnormal returns for the link) that produces a weekly sentiment report shows most measures are leaning too bullish but only put/call is truly too bullish. Kass on realmoney last week asked contributors to give highs and lows for the rest of the year and the results were interesting. not everyone participated, which means most were too chicken to guess. Those that did were not the bullish types -- their high end was near 1120 while their low end was in the 900's -- wow. I would be surprised by a pull back to 1000 let alone towards 900. anything is possible -- at some point the panic of watching gains go away will overwhelm investor's panic at not being in the market for this rally.
That said, I think its more likely you will see sector rotation -- getting that right could lead to great profits if you are nimble. going long that which is underperforming and selling that which is doing best has got to be a good strategy for this market. In 2003 we paused for several months around 1075 -- sound familiar? We first hit 107 on the SPY on September 17 and here we are over a month later and the SPY closed today at 106.91. that's some rally.
BAC last saw these levels in early August -- same for the XLF as well as semi's and actually the materials sector (MON anyone?). a few other sectors are well above their August highs -- industrials, consumer discretionary and energy stand out.
So if this rally is going to continue the laggards have to catch up while the leaders consolidate. Why? What economic scenario allows for the semi's to not see sustainable growth while the energy and industrial sectors do? just unlikely.
BTW, are you watching ERII? Here is a tip for you -- check out the sell side analyst reports that caution about the near term due to project delays but they remain confident in a strong 2010 -- people need clean water after all. If you can time that one, good luck. Much better off putting your chips in NOW while the stock is weak and adding on further weakness. Earnings coming up soon, which adds uncertainty -- last quarter they guided down but my bet is that was it. Just one cockroach in that kitchen? not unprecedented -- remember Flir who lowered last quarter and beat this quarter?
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