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Friday, March 6, 2009

The slaughter of the sacred cows

In a rout like the one we’ve had, eventually the market gets around to slaughtering the sacred cows.  Apple, Baidu, Goldman Sachs, Amazon are all down 5+% right now.  And believe it or not, this is a good sign.  When the fear infects even the stocks perceived to have a good opportunity regardless of current market conditions, it’s becoming broadly factored into expectations.  Typically the leadership is the last to fail and I think that’s what we’re seeing.  That said, I wouldn’t touch these sacred cows with a ten foot pole until at least Tuesday morning.  They need to correct – they’re behind and will make up for it quickly.

This also likely means we’re moving into a new rotation for the market.  Some groups will start to firm up first.  I wonder if the financials will be that group – it would be logical, though somewhat unfathomable.  The REITs are still getting slammed on a daily basis and there’s no sign of a resolution there for the time being – we know Bernanke is working on a way to help the commercial real estate debt market.  At the same time, the rating agencies are stepping up the danger by moving their ratings lower today.

So far I’ve only started nibbling at KLAC and AMAT.  I think when Taiwan Memory unveils their bailout plan, you’re likely to see the semicap group rally.  There’s no way any of the memory companies are spending a nickel of their own money when the government is about to dump a boatload of cash on them.  My guess is a budget, even a lousy one, will restart orders and it will probably look like a tidal wave relative to the dry spit of current business.  Most of the group trades near book value, which could be trough valuations.  They act like garbage still and I should be waiting for them to firm up first.

I’m thinking on Tuesday the leadership will be sufficiently demoralized for there to be a rally from the ashes.  Two days is an eternity in this market.  Keep your powder dry.

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