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Sand Spring Advisors LLC

Believe the Chart, Not the Hype

August 22, 2003


by, Barclay T. Leib


By now, almost all readers will know that Intel has boosted its 3rd quarter profit target, and suggested to investors that PC and chip demand is strong and getting stronger. Yet the chart below of the SOX Index strongly suggests to us that the SOX -- up some 50% year-to-date -- is near a point of major Fibonacci rhythm resistance.
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f.d. Chart welcher leider nicht herüberrutschte.


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Chart produced using Advanced GET End-of-Day

We also know that some of Intel's chip-centric brethren such as Novellus at 204x estimated 2003 earnings, KLA Tencor at 80x estimated 2003 earnings, and Applied Materials at 152x estimated 2003 earnings aren't exactly undervalued and compelling equity investment opportunities. Intel itself at 48x 2003 expected earnings is a joke for a company that will soon likely find AMD stealing a substantive portion of INTC's chip market share with the new and superior AMD Athlon 64 chip.

Instead, Intel's announcement today is likely just another backward-looking chance for insiders to lob out some more shares of this company and others in its space. The chip business may have stabilized a bit of late, but there is no true new rush by anyone to aggressively buy new PCs. There is"no killer app" immediately in the pipeline absolutely requiring higher chip processing power. Indeed, the PC I type this brief missive on is a 1999 Gateway and works just fine with its DSL connectivity!

The public's rush to buy into these former favorites at current valuations suggests that little has been learned over the recent three-year bear market. Rampant speculation at silly valuations still rules.

Is it time to buy some LEAP puts on some of the SOX Index stocks, and wait for the current euphoria to pass? We think so. Watch the tape from here on out, and ignore the hype.