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Thursday, May 13, 2004
Good evening friends,
Market Recap
If you missed the market today, relax, you did not miss a thing. It was a day that put most traders to sleep at their screens as the market went nowhere fast. The NASDAQ finished flat on the day with absolutely pitiful volume. The Dow closed down 34 points, below its 200 SMA on slightly less than average volume. This volume reminds me a beautiful summer day in July when everyone is on vacation and not trading. Someone forgot to tell the market we are still in May. This lack of volume along with all the major averages near their respective 200 SMAs tells me that at some point soon a major move will take place. We could see a savage sell off or a big move to the upside. Either or is anyone's guess at this point. If I were a gambling man, my guess would be to the down side. Could today's action be the quiet before the storm?
DELL Earnings
DELL came out with earnings after the bell today. The earnings were okay but nothing spectacular. It will take more than mediocre earnings to get some of these big techs moving, and if the big techs do not move, neither will the NASDAQ. If DELL, the leader in its field, is experiencing less then stellar earnings then you can bet that everyone else behind them in the food chain are having similar problems.
The Food Chain
For example, AMAT is the chip equipment supplier that supplies the equipment for INTC to make its chip that goes in a DELL computer. This is why we should be interested in DELL's earnings even if we are not interested in DELL's stock. We can learn a lot about future earnings of companies that are in a big bellwether's supply chain. This leads me to a discussion on sector trading and how they affect the markets. Tonight I want to talk about the Philadelphia semi conductor index.
Short “SOX” Are Now In Fashion
I mentioned recently that I wanted to get into some of the various stocks and discuss sector trading. Semi conductors are a part of our every day lives, and we depend on them in everything from our cell phones to our computers, to our cars. We will not discuss trading within this industry specifically, but rather give a general overview of the sector itself, along with the impact it has on the market.
Sector trading or sector analysis is basically looking at the group of stocks that make up a ‘sector'. Often, many stocks considered to be within the same industry will be a part of an industry based association with common interests. The semi conductor stocks have formed an alliance that is known as the Semiconductor Industry Association.
The semi conductor sector could be considered a sub-sector of the high tech industry. Some of the stocks that can be associated with the semi-conductor industry are INTC, TXN, AMAT BRCM, AMCC, PMCS, and AMD. These companies take the raw silicon and turn it into a computer chip. Those chips are then used in all sorts of high tech gadgets around the world. You may notice that these companies tend to develop products along the same time lines and release them along the same price guidelines. The technology changes its architecture, speed, and release of new products in cycles thus the price of the stock can often be seen running in cycles.
When the industry is hot, just about everyone is hot. When the cycle turns, everything suddenly turns very cold. Therefore, if DELL gets cold, big problems could be on the horizon for some of their suppliers. Markets forecast moves in advance and right now the SOX is telling us, maybe things are not as good as we may think they are.
Since the semi conductor industry is a front loaded industry; it can be used to predict the general strength of the overall market. It is the high tech version of the ‘tool and die' industry. When there is a great demand for tool and die manufacturing, you can bet that a surge in overall manufacturing and in the economy is only a quarter or so away. The same trend runs with the semis. If the demand for PC's or PDA's is seen on the rise, the manufacturers of those products must have semi conductors available to fill increasing demand of the consumers. So, they will place orders for more chips, and they will tend to do this in advance, so that supply can meet demand on the consumer side.
If we see weakness in the semi industry, it could be a strong hint that the whole economy is generally weak. If there is no demand for chips, this means people are not buying PDA's, PC's, cell phones, etc. That is why the semi's are referred to as the leading index within the macro tech sector. The NASDAQ will tend to react when semi conductor stocks are moving in either direction. With this index currently sitting well below its 200 SMA, you can predict where the NASDAQ (mainly tech stocks) maybe headed.
Industry and Sector List
In case you missed this link (posted by our own Metro yesterday) here it is again. It is a very useful link listing all the sectors. Thanks Metro. http://www.bullsector.com/bullsectorlists.html
Short Term Portfolio
The short term portfolio is now available online. You will find it under the short term link to the left in the pizza menu. You can sort in any fashion by clicking the headings in each column. The portfolio uses 5% of the portfolio balance in each trade. As the gains increase, the 5% position will increase, compounding our gains. It is updated in real time as each trade is made so you will not have to wait for the weekly update any more.
Many thanks go out to our very own Mike Tojo and Mike Serven for getting this up and running. It took many hours of hard work so thank them when you get a chance. Thanks guys, your work is very much appreciated.
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Sunday evening.
OTC BB Watch List
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