Monday, October 13, 2014

Friday’s Crash In Semiconductors

Let me add an addendum to the last post with the chart of the Philadelphia Semiconductor Index below.  This index was routed on Friday and has now experienced a mini crash.   We have also seen this dynamic repeatedly in individual stocks over the last four years.  Stocks crash and then are reflated almost immediately.   I’m not convinced there is enough liquidity to drive bouncing of indices up and down with such wild swings but it has happened repeatedly in individual stocks.  

I have never, ever seen anything like this.   And I am a market historian.  So, I have data and charts for the last one hundred years.  And some even older than that.  Amazon, Apple, Tesla, some biotechs and others crash and then within days of a bottom start another meteoric rise, often to new heights.   Below is an example of what I am talking about.  In Tesla’s chart you see three clear crashes that are very rapid.  Yet, you see rapid recoveries to new highs in the first two crashes.  The only way this is possible is through massive amounts of useless money in the system coupled with market manipulation.   As I wrote many years ago, this form of momentum trading is reminiscent of the wildly corrupt and fraudulent stock pools pre-1929.  But while stock pools are technically illegal today, a similar dynamic through which stocks are inflated for massive profit can be recreated without technically breaking the laws. 

Interestingly, I’m not an Elliott Wave kinda guy but I clearly see 5 distinct waves on the Tesla chart as I have annotated with the blue lines.  While the 5th wave has not been invalidated yet, when it is invalidated in coming months or after one more push to new highs, whichever develops first, I suspect we will soon thereafter start to see the demise of Tesla as a company.  As noted on here in past posts, I’m not convinced Tesla is a sustainable business and there is ample reason to believe the company is not long for this world.   Tesla has benefited from special treatment and special privilege in the world of cronyism that is so pervasive today.  But selling luxury electric cars to the generally ignorant who have created this economic and financial mess isn’t a winning long-term proposition.  Remember, a long-time thesis on here is that oil is headed substantially lower and could retest the 1998 lows of about $10 a barrel.   Who exactly is going to be buying if this outcome develops?  That is, except for the U.S.S. Economy that may find some need for Teslas as boat anchors. 


The amount of speculative excess, and useless money to drive it, that exists in financial markets is astounding and truly without historical parallel.    


Chart of the Philadelphia Semiconductor Index

Individual components to the SOX index were down as much as 15% last Friday.  It was a total rout equal to some of the very worst days in stock market history.  But, it was concentrated in semiconductors.  Leading up to the 2008 collapse, I penned a post about the impending doom associated with the strong rise in semiconductors and the foolishness of Jim Cramer who was pumping them out of pure ignorance.  Those same dynamics were at play in the rapid rise of semiconductors over the last year.  Semiconductor fundamentals, book to bill ratios and overall demand remains weak and spotty.  There are certainly exceptions in small niches but as I have noted ad nauseam over the years, I hate technology stocks.  I have discussed the many reasons for this.  But the primary reason as written many times before the 2008 crash is that the United States is and has been in the greatest capital investment depression in its history.  Capital investment is possibly the greatest indicator to future economic wealth and activity there is.  Making iPhones and Xbox gaming consoles will not sustain future wealth creation and economic development.   Nor will the massive capital spending on military weapons.  That is, unless the U.S. economic plan is to use those weapons to plunder the world economically as it has for the last half century.

What happened in semiconductors last Friday is something I have noted many times.  We could easily wake up one day and see the Dow down thousands of points at the open.  Seeing markets operate at the level I am involved in gives one a great appreciation of how dangerous financial markets really are.  And, have been since the crash of 2008.    

Humpty Dumpty, or the global economy, has been and remains in shambles.  There is no recovery.  There will be no recovery.  This system is now in a permanently failed state.  All we are witnessing is the status quo spending untold amounts of the people’s money, the manipulation of the people’s government and the manipulation of the people’s reality in a failed attempt to save itself. 

posted by TimingLogic at 1:08 PM