In this article I discussed the importance of keeping an eye on the semiconductor industry as a “canary in the coal mine” for the overall market. A broader discussion of trends and “warnings” can be found here.
But for now, let’s focus once again the semis. For the record, I am agnostic, so don’t misread anything as “table pounding bullish” or “the sky is falling” bearish. The purpose here is just to attempt to make an honest assessment of “where things stand.”
The primary thing that prompted this piece is the chart found in Figure 1. The chart was contained in this article on www.SeekingAlpha.com (which I highly recommend, BTW) and points out the fact that Advanced Micro Devices (AMD) is trading at an extremely high valuation level. For the record, this IS NOT intended to imply that a bubble is imminent this time around. But it does give one pause. As the semis are a “leading” sector, it would be a fairly ominous sign “if” they ran into serious trouble.
Figure 1 – AMD (Courtesy: www.SeekingAlpha.com)
The fundamental backdrop for semis in general and AMD in particular may be significantly improved from the 2000 and 2005 price spikes noted in Figure 1. So, let’s be clear:
*The message here IS NOT “Oh My God, we are in a bubble, sell everything and run for the hills.”
*The message here IS keep an eye on the semis. As long as they keep trending higher life is good. But if they start to roll over – let that serve as a warning sign.
Figure 2 – VanEck Vectors Semiconductor ETF (ticker SMH)
Jay Kaeppel
Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author. The information presented does not represent the views of the author only and does not constitute a complete description of any investment service. In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security. The data presented herein were obtained from various third-party sources. While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Past performance is no guarantee of future results. There is risk of loss in all trading. Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance. Also, back tested performance results have certain inherent limitations and
