Wednesday, January 25, 2006
Intraday & Sectorz : Watching the Semis
Semis (SMH) continue to be the scene of exciting market action. Its nice to have a sector that moves a percent on even sluggish days and several percent on a good one. As previously pointed out, SMH bore the brunt of last week's decline. Yesterday, the semis made a small black candle with a long upper shadow. Soon after the markets opened yesterday (Tue), several poeple had apparently decided that the all-clear on tech had been sounded. These people jumped headlong into the semis and drove the price up nearly 2 % to 38.10 within the first twenty minutes of trading in a bout of momentum based buying. I think the buyers showed too much enthusiasm and showed their hand. Then came the backlash that took the semis back to the low 37s resulting in the long upper shadow.
The market has a rather consistent way of punishing those late to the party. People who were buying the semis above 38 yesterday were clearly asking to be separated from their money. I mean-2 % in twenty minutes (even on the semis) is rather unsustainable and buying there is putting yourself on the wrong side of the risk-reward equation. If the semis recovered their gains too quickly, their atonement would not be complete with one caveat that I'm going to get back to. So we saw the semis being sold off for most of the day today, until they got really oversold around 36.83 and mounted a late rally to finish the day close to flat. It was also another high volume day for the SMH.
After hours, we got good earnings news from some key SMH constituents such as Novellus (NVLS), LSI Logic (LSI) and Altera (ALTR). This led the SMH higher in AH trading and is also likely to lead to a higher open tomorrow. It also possible, even likely that the smart money (money backed by information) started buying aggressively towards the close today beacuse they knew. If it was the same people buying yesterday at market open on good information, atonement for yesterday's momentum frenzy at the open may not be necessary and the SMH may zoom higher. We shall see.
I saw some clear technical damage done to the charts because of last week's action - especially on Friday. Others think differently. Fund manager John Hussman, whom I respect and listen to- was impressed with market internals in the face of last week's sell-off. Something to keep in mind.
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