Chips and a Dip
I don’t think I am going to bother mentioning all of the bad Euro News. It just seems to be the same although we did get a small lift from sadness when rumors of Chinese buying Italian Debt surfaced. I can see the Chinese buying Italian cars, clothes and art but their debt is at the bottom of my list. Just one more reminder of how sensitive equities are to whispers of Euro News. I liked it better when we had left Euro trouble in the 20th Century. Not all things are going horribly in equities so let’s take a look at the changing volatility landscape as of the close Monday.
First, as this is Expiration Week, I thought I would set up an Aqumin Landscape of 10 Day Implied Volatility over 10 Day Historical Volatility for a ratio of short term action coming into the final week of the cycle. A Dark Green Building has the ratio of IV10 TO HV10 2x or higher. The market is pricing significant moves for this week relative to how the name is actually moving. Also in the screenshot below Height is 1 Week Total Return (inverse) so taller buildings are down most for the week. I thought the Semiconductors stood out as the higher short term implied volatility had a reason to be elevated since the group (and on a couple of clicks turns out to be the Solar Semis) tanked this week. A name like TSL (Trina Solar) at >5 P/E seems to be the poster child for the sick sector.
A high profile US government backed bankruptcy in the space did not help the Solar Semis as they got pushed to lows for the year. Although the pricing is tempting in terms of elevated Implied Volatility there are too many overseas ADR’s and flim flam to take any real risk (ok maybe a little) in the group yet. The nice thing about surveying market data in AlphaVision is you can keep looking. Just flip over the landscape and zoom into the other side of the Semi story.
If you take out the Solar Stocks, the Semi’s did quite well in a pretty ugly week. They might have been the best performing Sub Industry if not for the collapse in Solar Chip stocks. While there is not as much short term edge in the volatility pricing as the Solar Semis, there is some decent edge as the market underlying volatility continues to cool (albeit slightly). Maybe this is the bounce in Semiconductors that is for real this year. At least you get some nice short term entry points in the Blue Chip Semi Chips. Have your Chips after the dip, as it were…
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