RealMoney Silver - Book Profits in Semis

Book Profits in Semis
By Richard Suttmeier
RealMoney.com Contributor
10/9/2007 12:00 PM EDT

Today is the five-year anniversary of the Nasdaq bottom at 1108.49.

I remember the headline back then declaring, "Tech Is Dead!"

We celebrate that capitulation with the euphoria of Google (GOOG) at $600 and a series of new highs from Apple (AAPL) . As a result, today's mantra is "Tech Will Lead!"

With the Nasdaq up 150% since its lows in 2002, Wall Street now says it's time to go overweight technology. Sure, some names have the mojo to move higher, which is great for active traders, but investors who sold at any price five years ago should not be jumping back in today.

Apple is 30% overvalued vs. fair value at $128.24, which has the earnings bar raised quite high when it reports on Oct. 22. Today's new all-time high as of 11:30 a.m. EDT is $171.11. After reporting blowout results in the second quarter, Apple shares declined 25% and traded below fair value, testing my semiannual value level at $113.59.

Google moved above $600 for the first time. Fair value is $585, with my quarterly risky level at $617.31. Today's new all-time high as of 11:30 a.m. EDT is $623.78. From high to low last quarter, Google shares declined nearly 14% to a test of its 200-day simple moving average at $486.25.

My focus today is not projecting the momentum for Apple or Google, but discussing the lack of leadership from semiconductors, which in my judgment is a signal to book profits instead of committing new money. If demand for electronic devices were so strong, the companies that make chips would not be lagging.

The daily chart for the Philadelphia Semiconductor Index (SOX) shows a potential head-and-shoulders top, and despite a new multiyear high for the tech-heavy Nasdaq, the SOX ended Monday 8.8% below its July high of 549.39. In fact, the SOX has been below 560 since May 2002.

Click here for larger image.

Source: Reuters

The $50 Billion SOX Components

Intel (INTC) boasts a market cap of nearly $150 billion, almost three times the second two. The stock has a hold rating, according to ValuEngine, with fair value at $26.31, so it's just 2.5% undervalued.

Since mid-July, the stock has tried to clear $26.50 three times but failed. My annual value level is $23.50, with a monthly pivot at $25.15 and semiannual risky level at $28.50. Intel reports quarterly results on Oct. 16.

Taiwan Semiconductor (TSM) is rated hold, with fair value at $10.38, so it's just 2.2% overvalued. The stock has been trading around its 200-day simple moving average the past two trading days at $10.65. My monthly value level is $10.14; my semiannual pivot is at $10.48, and quarterly risky levels are at $11.64 and $12.18. TSM reports quarterly results on Oct. 25.

Texas Instruments (TXN) has a hold rating from ValuEngine, with fair value at $34.42, so it's 5.8% overvalued. Since Sept. 21, TXN has failed at the low end of a price gap set between the July 24 high of $37.10 and the July 23 low of $37.94. My quarterly value level is $32.28, with a monthly pivot at the top of the price gap at $37.93, and monthly and quarterly risky levels at $39.12 and $41.13.

At time of publication, Suttmeier had no positions in any of the stocks mentioned in this column.

Richard Suttmeier is the chief market strategist for RightSide.com, where he writes the Small Stocks and Sector Report. Early in his career, he became the first long bond trader for Bache and later began the government bond department at LF Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the U.S. capital markets. He has also been the U.S. Treasury strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. He appreciates your feedback; click here to email him.

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