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  • The post election Semicap bubble just burst in one day

    Paradigm shift in SoC design flow : Software 1 - 0 Hardware-capital-equipment-min.jpgBack to a more normal reality... Market gets"De-Fanged"... Where to from here? The "Icarus" Effect... Much of the market, and especially Tech & "FANG" (Facebook, Amazon, Netflix & Google) stocks gave back most all of their post election day gains in one session. The faster the stocks rose, the faster they gave it all back with some of the higher fliers such as Lam , Ultratech and FORM off 7% on Decemebr 1st.

    In general SEMICAP stocks seemed to be off by an average of roughly 5%. The reality is that the stocks went up for no real reason (as nothing substantial had changed over the last month) and came back down for no real reason- no downgrades or major announcements in the space. Nothing much changed either way, up or down.

    Nothing new to drive the stocks...
    Over the last month the stocks have been rising for no good reason other than a post election rally. There was no significant news in the semiconductor space and no discernible change in momentum. We were well past earnings and no surprises or pre-announcements to speak of. Nothing to move the stocks other than the stock market itself.....

    Business remains good....but we knew that already....
    3D NAND, 10NM and 7NM spending remains on track and DRAM has been spending much better so all has been good, in fact better than expected, but this has not been new news as we have known for a while that the second half would be better than expected and even overflowing into Q1 of 2017. Expectations and estimates haven't changed, and most companies still are seeing record or near record business.

    Life in a fourth order derivative market and stocks...
    As it has always been, Semicap stocks and Semicap companies remain at the end of the whip and most levered, both up and downward to variations in the economy and markets. The Global market, drives the US market, drives tech stocks that drive semiconductor companies that ultimately drives semiconductor capital equipment spending and companies. The global market has the sniffles, the US sneezes, tech stocks catch a cold, semis get pneumonia, and semicaps drop dead...... thats why semicap stocks were off 5% in one day, while tech was off about 1.5% but also why its fun and exciting to invest in them.

    Will there be a "dead cat bounce"?
    We didn't see much of a bounce during the trading session as the stocks fell hard in the morning and continued to drift downward for the remainder of the day. We think that the selling was driven by a bit of an element of fear and greed as some investors wanted to sell to try to lock in recent gains coupled with fears of a bigger correction. Investors we spoke to did not seem to be willing to fight the tape and may stand on the sidelines tomorrow hoping that not much happens on a Friday.

    Falling through some support levels...
    Some stock broke below some important psychological barriers that may be a bit more concerning. LRCX fell hard through the $100 mark , dropping 7%. ASML broke just below $100, closing at $99.99, down 3%. AMAT just managed to hold onto a "3" handle. Even though AEIS was off 5.6% it still was up overall over the past month so there could be more of a correction coming for some stocks like this that haven't given back all their gains yet.

    Industry Cyclicality and cheesy horror movies....
    Fear of the cyclicality "boogey-man" remains a significant overhang in the stocks. Although company management claims the industry is no longer cyclical or that at the very least , cyclicality has been greatly reduced, most investors don'y buy it.....Its like telling a child having a nightmare that there's no such thing as the "boogey-man".

    Cyclicality is much like Jason in the Friday the 13th series of movies. He gets run over, shot, drowned, burned and dies a hundred deaths yet always seems to rise again to terrorize investors......you just can't seem to keep him buried.....

    So whats an investor to do???....
    We don't think we want to be in the way of potentially falling spears or be a hero trying to swim against what was a very strong tide of selling. It feels a lot like the stocks should settle back in to where they were before things got stupid, meaning somewhere around pre-election levels.

    There is no significant catalyst to believe otherwise. We don't think Trump's election is really going to spur 3D NAND consumption or speed the pace of 10NM and 7NM investments. If anything, Trump may be less of a friend to the Semicap industry that has many technical workers under a visa program he wants to get rid of. He continues to threaten a trade war with China. Also, we live in an industry where much of the actual manufacture of products has been moved overseas over the last ten to twenty years.

    This leads us to believe that the stock bubble we experienced was more of an empty, knee jerk reaction rather than calculated analysis of the potential benefits of a new administration to the industry. Investors who realize that the stocks went up for no reason will not likely bid them up again in the near term.

    If there were an overreaction on the negative side to below pre-election levels, we might be tempted to step in and selectively buy stocks with good fundamentals or those that got overly beat up for no good reason.