Go buy some semis, boys!

I think I am a terrible trader even after all this time. Luckily, it mostly works out for me as fundamentals do eventually assert some influence on equities after an indeterminate amount of time. But sometimes I don’t have the patience or interest in waiting for my view of the world to cycle around.

Then there’s The Wife and her astute technical analysis, skipping happily along and saying “What’s your issue, Lotto Boy? Why do you fight so hard?” All the while booking seemingly easy gains in a good tape and laughing at me from the sidelines when I’m fighting a difficult tape. The Lao Tsu of trading, she seems to be, and I cannot argue with the results.

I have found peace in the world by following the herd with technicals while also peeing my pants in excitement when fundamentals and technicals line up nicely. This makes my life less drama prone and allows me to focus on more important things like “Just how hot is Racer X vs Racer 5?” “Why do they call it a drought?” and my personal favorite “Just who are these people who have invaded my California?” These are much easier to digest on a daily basis than “Why is TSLA going higher when units are OBVIOUSLY stagnating?” (That was a Feb 2014 argument I had with myself. I did not win, which is a problem when you are arguing with yourself.)

Which brings us back to semis. The fine folks at ISI recently gave us this:

“The SOX is just now emerging from a 14-year base. The decisive breakout from a well-defined 100 point trading range bounded roughly by $550 on the low end and $650 on the high end projects measured upside to $750. This is where moves begin, not where they end.” Moreover, “with January the best month historically for Nasdaq performance, we don’t see why this breakout wouldn’t work into the new year.”

Here is ISI’s chart of the idea:

The below charts are The Wife’s take on the SOX breakout:

Meanwhile, INTC keeps poking 37 and AMAT claws toward 25. You mean we go higher?!? How on God’s green earth is that possible? My initial response is to scoff, guffaw, and generally whine about the obvious inanity of the comment “This is where moves begin, not where they end.”

Unfortunately for me, such grumbling usually leaves me in the king chair watching the little lines draw themselves further up and to the right. Luckily, The Wife sets me straight, stuffs a sock in my mouth and pushes the buy button anyway. (I chewed through the red rubber ball like a dog, so we are on to tougher and more pliable toys – like I said, the Lao Tsu of…oh, nevermind…)

Let’s give ISI the credit and assume the SOX not only goes higher but does so with gusto in January. How will this happen?

The SOX is the aggregation of multiple other stocks, a derivative as it were. We are drawing lines on a chart of a derivative and saying this means the components go higher as a result, as opposed to drawing lines on a chart of certain stocks and saying the SOX goes higher. The tail wags the dog? My bloods bubble a little just considering the idea.

There is indeed only one way the SOX goes higher: its component stocks must go higher. Let’s look at those components. The chart at the bottom breaks down the SOX into its components with market cap quotes after the Dec 12 close when the SOX was at 671.

• The Top 3 are INTC, QCOM and TSM. I get it and this makes sense to me. These guys are 48% of the SOX. My personal feeling is that INTC and TSM go flat and QCOM goes lower into January. It is hard for me to believe the SOX goes higher without at least stability from these three, and I think these “three” go lower as QCOM goes lower.
• The Top 5 includes TXN and ASML who add 13% of the SOX. How ASML made it up here is beyond me, but the lunatics who bid the thing up in the first place likely don’t give up until end-2015 at the earliest; the SOX could get a boost from ASML.
• MU, AMAT, AVGO, BRCM and SNDK are the next five and add another 16% of the SOX. The Top 10 comprise 77% of the SOX. I am most definitely bearish on MU and SNDK which means they go higher just to piss me off. These can be offset by AVGO and BRCM. AMAT likely goes sideways.

It is impossible for the SOX to go higher without these Top 10 stocks also going higher. That’s a problem for me. But, if the SOX goes higher, my guess is that ASML, MU, AVGO, BRCM and SNDK make the push.

Well that was fun. Did you know CREE is still in the SOX at #29? And why is FSL or NXPI in the SOX? Nevermind, I am sure I can look that up later. If FSL and NXPI can be added, surely we can remove MCHP simply because of its idiotic CEO. I need to go have a talk with the guys in Philly.

So there we have it: the chart of a derivative says it is not just going higher but 15% higher (per ISI), and my personal view is that the components of SOX go lower through January.

I know how this ends. I’ll be hopping around the house with a scowl on my face simply because I am short some stocks. Meanwhile, the SOX will go higher simply because the chart says so as QCOM, ASML, MU, AVGO, BRCM and SNDK add ~$100bln to the SOX. The Wife will yell at me to “Settle down and quit scaring the dog!” I will go sulk in the corner king chair to watch the stocks and her portfolio go higher.

So do yourselves a favor and go buy some semis. Don’t fight it. And let The Wife show you how to do it stress free.

It appears my time around these parts is short. I enjoyed it while available, but now I must keep quiet. The below is the latest from my uncle:

My dear Ab,

I sometimes wonder whether you think you have been sent into the world for your own amusement. I gather, not from your miserably inadequate report but from that of the Infernal Fly, that the patient’s behaviour during the first raid has been the worst possible. He has been very frightened and thinks himself a great coward and therefore feels no pride; but he has done everything his duty demanded and perhaps a bit more. Against this disaster all you can produce on the credit side is a burst of ill temper with a dog that tripped him up, some excessive cigarette smoking, and the forgetting of a prayer. What is the use of whining to me about your difficulties? If you are proceeding on the Enemy’s idea of “Analysis” and suggesting that your opportunities and intentions should be taken into account, then I am not sure that a charge of heresy does not lie against you. At any rate, you will soon find that the justice of Hell is purely realistic, and concerned only with results.

You have let slip a grand opportunity with our ally The Fly, one which came with great effort and coercion. The howl of sharpened famine for that loss re-echoes at this moment through all the levels of the Kingdom of Noise down to the very Throne itself. All that sustains me is the conviction that our Fundamentals, our rejection (in the face of all temptations) of all silly nonsense and claptrap, must win in the end. Meanwhile, I have you to settle with. Most truly do I sign myself

Your increasingly and ravenously
affectionate uncle

Screwnote

 

A grand thanks to The Fly for the opportunity to write here. Good luck to all!

Y’know, we spend so much time babbling about how stupid Congress is, we forget to point out the analysts who are just as guilty.

Take, for instance, Mr. Doug Leggate of BAML and I believe of former ML fame. I am actually a big fan of the original ML commodity analysts because they do as they say and say as they do. Or at least “said,” hard to say for sure these days. Anyway.

Shall we revisit the idea of “price = volume”? Yes, let’s.

Our good man takes last week’s oil report and says

Crude inventories fell 3.7mmbbls driven by higher utilization as WTI discounts arguably provided the incentive to run. A spike in mid west refining runs is also likely responsible for a ~1mmbbl draw at Cushing bringing the total draw to 3.2mmbbls or ~10% since early June, and total stocks back to exactly the level of 2010. With this backdrop we suggest Cushing inventories are not the driver of a near doubling of the WTI-Brent differential to $20 since early April. Rather we point to external events and the confluence of North Sea production outages, a 30% increase in E Coast utilization and the IEA oil release; we view as transitory.

Can we be honest here? Please? Let’s just get right out there and say that North America is currently producing more oil within its continent than it can consume. Cushing inventories were not the driver of the WTI-Brent discount, but simply a symptom. Much like we see stock prices drift lower in search of a buyer, WTI drifted lower in search of an acceptable arbitrage. Inventory built up (negative volume) as the differential increased in search of buyers, not the other way around. Domestic consumption was unable to fill volume, and thus price looked for the Brent arbitrage to find a bottom.

Does this not suggest we are producing enough oil within the continent to at the very least satisfy our consumption? Let’s all be sure to remember that the WTI-Brent spread widened to abnormal levels in Q4 of last year, not Q1 of this year. While the “Arab Spring” or “Spring Arab” or “I’m a bouncy schoolgirl on the corner” is the popular reason for the differential, take a step back and consider just how bad the Republicans would look if we suddenly discovered that the US was exporting oil products rather than importing crude.

For the record, I am still a registered Republican. I was from the moment I had the opportunity to sign up. In disgust and protest I have not voted Republican for 11 years. I wait hopefully for the opportunity to vote Republican again. This past week’s events suggest I might never vote Republican again.

I will bet $5 that Leggate voted for Bush.

With all this hoopla surrounding the avoidance of US-listed Chinese stocks because they might be frauds or can’t be bought out or don’t provide dividends…

…what makes CSCO or others different if they can’t offer a divvie because most of their cash and cash flow is locked up overseas?

Just wandering about musing.

I believe people want to do the right thing. I believe people will go out of their way to do so.

I believe people have different definitions of “the right thing,” thus leading to our current differing opinions.

But I believe people also recognize when they are wrong. Maybe they need to go through the steps, but eventually recognition of failure bubbles to the top.

Baner/Boner/Boehner has failed. He actually failed a few weeks ago. Tonight he risks physical removal. Considering we are so close to a Lehman event – one which will likely be called a “Boehner event” – I expect him to totally cave tomorrow. This debt ceiling bit is running on fumes and Boehner’s Republicans lost big time.

I mean, Dick Fuld can suffer; the man made a fortune and can hide somewhere. Boner? What’s he gonna do, hide in a shack in a corn field in Ohio? God Bless, let him live with the crows. If the man wants to stay in Washington, the first press release tomorrow is conciliation.

Let’s be clear. He is in the House. Of course his view/bill will be hen-pecked first. It originates in the House. If you’re gonna pick a fight with the Prez from the House, you need your ducks lined up. Clearly his ducks weren’t lined up. Therefore, unless Boner becomes Baner’d to an Ohio cornfield, this whole thing resolves tomorrow.

If it does not, I will throw every dollar I own into an OTM TNA put at tomorrow’s close. Either way, I will be done trading by next week.

My time is near, so I need to make this quick. I had grand plans, talk of how I can’t think of BG anymore without thinking about gambling (thanks Cain Thaler), or about how this whole debt ceiling bit will end with a whimper and 30min of press time, or about the sham of Potash earnings that falls on deaf ears. No no, I must be on my game here.

TAFKAT has a good game going, and one can hardly argue with his latest round of semicap calls. We might, in fact, need to remove the moniker “TAFKAT” and resume using his original name. But not so fast. Buddy-boy needs to man-up and stop trading.

First, in the usual round of LED earnings calls today, did anyone hear that one bozo who could barely speak English try to reference “capital intensity?” I just about choked trying to keep my laughter down. How do you find a reference point for capital intensity in a group that has not exhibited cyclicality?

Whatever, in tech land these days, capital intensity can truly only reference chips. Our man TAFKAT is in denial. While he chases the easy gambling money into LRCX in hopes memory prices go higher, he misses the forest for the trees in that KLAC is the one pure beneficiary of EUV’s failure that is leading to this higher capital intensity. He even mentions KLAC as a beneficiary but shies away from recommending the stock because KLAC has outperformed LRCX so far this year. Guess what Meatball? Everything outperforms LRCX. Bless you for trying to breathe life into its valuation but it’s not gonna help.

Moving on.

He complains about KLAC’s lack of exposure to memory. Boo hoo. So KLAC is smart enough to not play by Samsung’s rules. One day TAFKAT is not happy about Samsung exposure, the next he is not happy about INTC exposure. You know what? These days I will pay for INTC exposure, especially since it looks like AAPL is about to give Samsung the boot.

Woof! Did I say that or just think it out loud?

Oh yeah, then there’s that KLAC divvie. C’mon you idiots, sell it down. I am a buyer in 50c increments below $40.

So you really want metrology exposure to memory? Buy NANO. Is anyone really surprised by tonight’s report? I saw an ask as low as $13.50 after hours. That is about the stupidest thing I have seen in a long while. I am a buyer in 50c increments below $16 tomorrow. I will hold it until LRCX buys the company for >$30.

Do you get the picture? Tech is on sale. I am a tech bear, but this shit is getting ridiculous. I know how this movie ends.