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Wednesday, October 24, 2007 10:53 AM

Bad Breadth and Smelly SOX

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Of the 400 NASDAQ points we're up this year 206 came from three stocks

  • Apple (APPL) 127
  • Research in Motion (RIMM) 47
  • Google (31)
Tip of the hat to Toddo for that fact.

The Nasdaq Index was up 47+ points Tuesday. Inquiring minds are asking how many stocks participated in the rally. The answer was 47 (headed into the close).

Tip of the hat to Professor Bennet Sedacca for pointing this out.

Smelly SOX

Click on chart for a sharper image.

The $SOX is up for the year but barely. It would not take much at this point to put it into the red.

Broadcom Daily Chart

Click on chart for a sharper image

Broadcom is 9.25% of the $SOX. So even within Ole Smelly, it pays to be selective. However, after hours Broadcom was down 11% to $37.35 so we may find out Wednesday that semiconductors are no longer positive for the year.

Semiconductor PEs & SOX Weightings

Altera (ALTR) PE 24.81 - 5.17%
Advanced Micro (AMD) negative - 3.05%
Broadcom (BRCM) - PE 97.36 - 9.25%
Intel (INTC) - PE 25.21 - 5.91%
KLA (KLAC) - PE 20.32 - 11.84%
National Semiconductor (NSM) PE 24.44 - 5.83%
SanDisk (SNDK) PE 101.07 - 9.78%
Xilinx (XLNX ) PE 24.58 - 5.75%

Those seven make up 57% of the $SOX index and I see no bargains even after this substantial pullback from the summer highs. Where's the value?

Other Notable PEs

Amazon (AMZN) - 139
Google (GOOG) - 55.91
Research in Motion (RIMM) 81.39
Apple (AAPL) 52.57

Are the implied growth rates of those four remotely justifiable?

When Will Good News Sold?

I keep waiting for good news to be sold. We have seen bad news finally start to matter in the S&P 500, but good news as in today's Apple earnings has been bought to excess as evidenced by excessively bad breadth.

Perhaps Wednesday is the day, perhaps not, but the after hour's indication following Tuesday's narrow rally tech love fest are pointing that direction.

Lets see if it holds, but it appears that Amazon was priced for far more than perfection. Here is the headline: Amazon.com 3Q Profit Skyrockets
  • Earnings for the quarter ended Sept. 30 skyrocketed to $80 million, or 19 cents per share, from $19 million, or 5 cents per share, during the same period last year.
  • Analysts polled by Thomson Financial forecast a profit of 18 cents per share.
  • Revenue climbed 41 percent to $3.26 billion from $2.31 billion in the year-ago quarter. Analysts had predicted $3.14 billion in sales.
  • Shares of Amazon.com fell $9.30, or 9.3 percent, to $91.52 in after-hours electronic trading, after adding $9.53, or 10.4 percent, to close at $100.82 Tuesday.
Nasdaq index buyers are dancing the same tune as Citigroup (C) CEO chuck prince who right before the mammoth SIV problem started last summer stated “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing".

Buyers escaping the mess in financials are now rushing head over heels into the Nasdaq Index without bothering to see what the risks are in technology. For more on this idea see Todd's post Are We At Risk?

Reminiscent of Spring 2000, the Nasdaq index is once again priced for perfection. One thing is certain: Perfection Can't Last.

This post was written very early in the morning. As of 11:00 AM Wednesday, almost off all the Google lovefest has been given back.

Mike Shedlock / Mish

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