Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Semiconductor Stock Market Canaries: Chirp, Warble… Soon a Croak and Silence?

Stock-Markets / Stock Markets 2018 May 19, 2018 - 04:05 PM GMT

By: Gary_Tanashian

Stock-Markets

In light of earnings reactions in the Semiconductor Equipment sector, it’s time for an update of a theme we have had in play since November, 2017

The canary is no longer chirping in a healthy manner and the economy’s coal mine has a toxic gas leak. While the recent Lam Research (LRCX) earnings report was pretty good and there were positive aspects to that of Applied Materials (AMAT), these highly cyclical companies that have been at the front end of the entire economic cycle that had its beginnings in 2013 are showing signs of wear.


Business is still good but when you are talking about cyclical leaders, it is growth rate that matters. I have read article after article touting strong current business and future drivers that will change the typical Semiconductor cycle as next generation Fabs are needed for ever more dynamic specialty chips for higher-end devices.

Applied Materials Slides After Softer Q3 Forecasts on Weaker Smartphone Demand

“Smartphone sales have been below expectations, particularly for high-end models, and in response, both semiconductor and display suppliers have made adjustments to their capacity planning,” CEO Gary Dickerson told investors on a conference call. “With inventory rebalance that we’re seeing from smartphones, we’re going to see a sequential dip in the Q3. But from our guidance into Q4, you can see that it recovers nicely into Q4.”

Taking the pulse of the analyst community, from the large houses to the boutiques to the chattering blogosphere, the theme seems to be that a buying opportunity is developing for the likes of AMAT and LRCX, two excellent companies. If you take Applied CEO Gary Dickerson’s view at face value, a decline in these stocks would be exactly that, an opportunity.

But as someone from the real world (as opposed to the Armani wearing analyst community) I can tell you that these companies have no better visibility than you or I. How can they? The global macro economy is subject to many inputs and if future outcomes were that easy to read, we’d all be rich beyond our wildest dreams because we’d have already seen around every corner. The global economy, while healthy now is not immune to the business cycle.

So here is a corner to look around. In NFTRH we began using this chart in Q4 2017 after a major financial media outlet published an article touting these two companies as great values for great investment returns in 2018. Leadership by the Semi Equipment companies has flattened out.

Here is the November 21 2017 post in which we disputed the sensational MSM headline:

“Fund manager looks beyond ‘FAANG’ stocks and finds even bigger winners for 2018”

Semi Equipment Spending Record, 2018 Growth, but…

And now this morning in pre-market we have a reaction to AMAT’s earnings. From Yahoo Finance:

While other aspects of the market are positive this morning, we are looking at a progression of cyclicality and that progression, as we have noted many times since using it toward a positive cyclical view in early 2013 is…

Semi Equipment → Semiconductors → General Manufacturing → Economy → Employment = Cemented Opinions of the Herd

Okay, I know it’s simple but when confronted with legions of analytical entities with firmed up views (like a buying opportunity in Semi Equipment) it pays to at least consider that when we became constructive on not only the Semi sector but looking forward, the economy as well, it was not canaries we were hearing; it was crickets! As in ‘cue the crickets’ in the economic analytical community. That was the response when we claimed a positive cycle was at hand.

Now? Your favorite buttoned down analyst and/or your favorite financial blogger may be on the opposite side and an article like the one you are reading right now is definitely in the minority. I expect the response to be largely ‘cue the crickets!’.

This chart dials out to the late 2012 low and new cycle leadership by the two major Semi Equipment companies over the general sector. Each ratio is currently in a nasty looking pattern that is not likely to be improved after today’s market activity.

At this point I want to give proof that I am not just some bear waiting interminably to finally give you the big “I told you so!” a few years after establishing a bias.

When it was time to call b/s on the ‘end of the Semi cycle’ that the major media were scaring everyone with after Microchip Semi’s (MCHP) dour forward forecast (the media incorrectly dubbed MCHP a “canary in a coal mine” for the Semi sector) in 2014, NFTRH disputed that assertion per this post and NFTRH 322 excerpt…

Semiconductor Equipment Sector Update (December 26, 2014)

And then there was the disturbance in 2015-2016, in which we kept NFTRH subscribers on course with the correct – as opposed to media instigated – view of a still-positive macro backdrop.

AMAT Chirps, b2b Ramps, Yellen Hawks and Gold’s Fundamentals Erode (May 30, 2016)

It is vital to show your work, just as you had to do in grade school. Otherwise you are just spewing opinions, stirring emotions and/or confirming peoples’ bias. I don’t go negative unless given reason, with a great example being a timely post on the over-hyped 3D Printing mania that the Armani suits were shoving down peoples’ throats. Shortly after it was written, at the height of the promotion and ridiculous valuation, the sector imploded.

3D Printing; no Barrier to Future Losses for Investors (February 24, 2014)

One SeekingAlpha article recently cited Semiconductor industry experts as a guide to a bullish view on the industry. Lest you think I am grabbing data out of thin air, realize that I have used that source (SEMI) for both positive and negative views. They no longer publish the Semi bookings side of the book-to-bill ratio (b2b) we found so important to guiding a bull view back in 2013 and reaffirming it in 2016. But they do provide ongoing analysis. The issue is in the interpretation of the data.

Today’s happy-go-lucky analysts see the still-positive projected growth for 2018 and headlines like this and project positive outcomes well into the future.

Stunning growth for fab equipment spending – four years in a row

Others on the other hand, try to look around corners, whether toward positive or negative outcomes. Add the slowing Fab Equipment growth rate to the list of negatives that the charts and now, corporate guidance are starting to burp up.

As a final thought, consider that no single analyst should ever put out a view for peoples’ consumption that is set in stone, to be defended come hell or high water. That only ends up hurting those who believe in the authority with which the analyst seems to speak.

So if I am wrong and the sector is only providing a buying opportunity (as in 2014 and 2016) then so be it. Adjustments will be made. I am not marrying the view. But since last November when a goofy MSM headline called my attention to the subject, I have not seen much to dissuade a negative Semi Equipment view and hence, eventually a negative economic cycle view. Patience and perspective, as always.

Subscribe to NFTRH Premium for your 40-55 page weekly report, interim updates and NFTRH+ chart and trade ideas or the free eLetter for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com and Biiwii.com. Also, you can follow via Twitter ;@BiiwiiNFTRH, StockTwits, RSS or sign up to receive posts directly by email (right sidebar).

By Gary Tanashian

http://biiwii.com

© 2018 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in