Chip Stocks Have Poor Charts (ZT)

fmln06

Interesting charts.

**************
LAST WEEK,  INTEL (INTC) released fourth-quarter earnings results that, ere better than expected.

But the stock ran up before the announcement and fell hard the day after to invoke the old saw, "buy the rumor, sell the news."

In technical analysis, such poor reaction to good news is a bearish condition and indeed the stock's price action left some bad signs on the charts. It also cast a pall over the entire chip sector despite some of the good fundamental news we have seen recently (see Barron's Take, "Buy Intel on the Dip", January 15).

Right now, the charts show some disagreement with the news. While there has been no sector-wide technical breakdown, pockets damage may foreshadow negative changes to come.

All this comes amid a rotation of investor dollars away from technology and into such areas as financials this month. Weakness relative to the overall market is not necessarily a sign that these stocks will fall in price but rather that other areas of the market are hotter.

However, when looking at component stocks as individuals there are indeed some bearish rumblings. For example, Texas Instruments (TXN) was already falling for several days before Intel's news (see Chart 1).

Chart 1


Even casual chart watchers will immediately note that the rising trendline from the March low was soundly broken to the downside. A more advanced eye will also see that volume increased significantly during the tumble to suggest that this was an active investor retreat. In other words, it seems to be more than just a pullback leading to a new buying opportunity.

ASML Holding (ASML) more than doubled in 2009. On the plus side, it sports an unbroken rising trend and an analyst upgrade as recently as last Friday. However, it has also returned to the $35 a share level and within a few dimes of where it was in October 2007 when the stock market peaked (see Chart 2).

Chart 2


Further, when it got to this important resistance level earlier this month, it immediately headed lower on very heavy volume. Again, it was a negative-technical event leading to an active, not passive decline. Sellers were clearly in control and while the sector rebounded in Tuesday's session, ASML did not. This should not be disregarded as simple profit taking.

Another stock that seems to have peaked is Cree (CREE), which has both semiconductor and light-emitting diode (LED) components. After tripling in 2009, the stock began to ease one week ago and then on January 15, when Intel fell, Cree shed 6.6% with no apparent company specific news (see Chart 3).

Chart 3


Here, too, the stock has not officially broken its rising 2009 trend but a price drop of that magnitude on triple its normal daily volume is significant. Subjectively, it tells us that there was an initial rush to the exit doors as investors suddenly did not like what they saw. A trailing 12-month price/earnings ratio north of 100 likely had something to do with that thought.

But there was something in Intel's news that may have been the spark to light the kindling of Cree's overheated technicals. While the numbers were better than expected, analysts hinted that they also triggered worries about a peak in earnings growth for the stock and the sector.

As mentioned, the technicals are showing pockets of problems for the semiconductor sector rather than a wholesale view that things are about to get ugly. But it is interesting that behind the headlines of last week's earnings success, analysts suddenly became worried that there is no more good news left to emerge. And the charts started to hint at this several days earlier.

Thus, it may be time to cash in your chips.

busywind

thanks

sooners

1# fmln06


thank you very much.

coexist

...