Treasuries and Semis

While I can’t claim to always get it right, I sure nailed it last week:

There’s some interesting action happening in Treasuries. The yield is just under 4% after dropping to 3.8% briefly on news of the slow jobs creation. That means prices are high. Some would say very high. The dollar’s 7-month climb is looking creaky. I believe that the dollar and Treasuries are in for a correction, and I’m looking for ways to capture that.

The Lehman 20-Year Treasury ETF, symbol TLT, reached $96.50 on Tuesday, then sold off to close Friday at $94.89, a 1.7% drop with a resulting yield above 4%. That may seem insignificant, but it moved the options I was looking to buy on the cheap up some 30%. I’ll keep watching this for a chance to get in and let you know if and when it appears. The trend is down for Treasuries, the question is whether or not we can play it cheaply enough for my taste. As long-time readers know, I would rather miss a little profit than buy something before it’s screamingly cheap.

The trend in semiconductors has been going our way for some time now, and that continued last week, at least in business performance. Intel raised second quarter guidance to $9.1-9.3 billion, compared to a previous range of $8.6-9.2 billion, thanks to unflagging demand for notebooks. That should have been good news, but remember that Intel’s stock has surged more than 25% over the last seven weeks. That combined with good recent performance from other chipmakers led to solid profit-taking on Friday that left our Ultra Semiconductor position down 2.8% for the day and up only 9.5% from our buy price. I mentioned last week that I’m looking to get out soon with at least a 10% profit. Now, I’m not sure. The scenario that led me to buy in the first place is playing out precisely on cue. While I think that semiconductors will fall over the summer, I think they’ll have a big rally in the fall and that it might begin sooner than anybody expects. I don’t want to miss it.

I’m not alone in this thinking, by the way. SmartMoney has been following the sector as well, and suggested back in January that investors wait until spring lows to invest for a surge in late summer or fall:

The scenario that chip inventories would be worked down and the industry would post modest growth this year and higher growth in 2006 isn’t new. Back in January, when chip sentiment was low, we noted that many market watchers expected the industry’s fundamentals to bottom sometime in the third quarter, meaning that a buying opportunity could come as early as spring.

We sure nailed that one. During the past few months, a number of companies have become more upbeat about their business outlooks. The Philadelphia Semiconductor Index hit its lowest point on April 15 and has since risen 12% to about 430. [full article]

Our Ultra Semiconductor position has ridden that path down and back up again but not to the levels I want. I’ll keep an eye on it but do nothing for now.

Beyond those two items, there’s little of note in the market now. I’m still treading water for the most part, waiting for cheaper prices.

There is news here at the site, though. I received a note from Steve LeCompte at CXO Advisory Group informing me that he had concluded an audit of my investment performance here from September 2001 to last week. It’s quite a thorough look at what I’ve suggested in articles followed by what the market actually did. While the results should not be surprising to anybody who reads and follows what I write, it’s encouraging to see it reported by a reliable third party. I’ve put a link to Steve’s report just under my investment update at the top of the Kelly Command Center, upper left of this page. Or, you can get to it by clicking here.

I want to thank Steve publicly for taking the time to watch this space and tabulate the results. In addition, his site, www.cxoadvisory.com, is useful. It’s worth your time to poke around there for some good investment tidbits including timing models and an unbiased look at the advice of some well-known advisors. You might be surprised to see who’s worth listening to, and who’s not.

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