The play on words with the title is not about the general Semi sector but rather, the Semi Equipment segment within the sector. While I have been forced to cover a few shorts due to upside parameters, I have held both AMAT and LRCX short (after increasing these positions last week) as they were conspicuously weak yesterday on the big market rally.
The progression we are working to is all theoretical and it would be among the earliest of economic signals. Semi Equipment → Semi → General Tech & Manufacturing → Jobs → Widespread acknowledgement of a strong economy (or something along those lines). The chain reaction toward today’s positive environment began in early 2013 with the start of a firm Semi Equipment bookings trend; a trend that we confirmed 3 months later that spring.
Today, while the economy is widely acknowledged to be going great guns and none other than the Macro Tourist has got “boots on the ground” info about its firmness beneath the headlines, our job is to be right with the currently bullish reality but to always be among the first to look around the next macro corner.
It is interesting that he uses the term “boots on the ground” because that is the exact term I used back in 2013 when checking with a former associate who services the Semi Equipment sector (MKSI, BRKS, etc.). So I am going to see if I can dig up his contact info (it’s been a long while) and if so, will get the lay of the land in Semi Equipment from those “boots on the ground”.
So anyway, my LRCX short has finally gone solidly green as Wall Street starts to catch on that there may be some issues in bubble land (the bubble being investors’ ironclad confidence in these solid companies with an accompanying story about how they are no longer cyclical; i.e. a new paradigm). That’s B/S IMO.
Meanwhile, we should continue to realize that headlines are usually non-core fundamental events in and of themselves.
Here is LRCX breaking down on the news. It will probably not give up the noted support area easily. But the stock has been in a suspect looking pattern, which is part of why I had patience in holding it short.
As for its fellow Equipment maker AMAT, this thing has also been in a suspect pattern and may be breaking down from its 3rd bear flag since the high.
The other reason I continued to hold (and add to) these short is their ratios to the broad Semi sector, which are and have been suspect to bearish for months now, as we originally noted when the weakness began.
Here are the daily chart breakdowns in progress.
And the weekly, which we noted as changing trend back in Q4 2017.
The implication of problems in the Semi sector are not necessarily that the world will end tomorrow. It took a long while from early 2013 for the buttoned down Wall Street houses and financial media to widely accept the positive economy and bullish markets. It took years, really.
So let’s for now keep this as what it is, a developing negative signal on the economic cycle and realize that the Wall Street shops and their herds will probably rotate out and pump new areas for a while.
But this negative input does seem to further our favored view that a test of the highs, if it comes for the broad market, will not necessarily mean a big wave 5 up as the Elliott Wavers will be trumpeting. Instead, if the timing works out (i.e. this signal is not super early) it may signal a coming failure for the broad markets.
Let’s see how the week ends and talk more about this in NFTRH 503.
