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Chips Ahoy!

04-21-2017

The indices flopped around unchanged through midday, and in the afternoon the indices drifted slightly lower on the day.

They're Flying Onto the Shelves It is worth pointing out that last night semiconductor manufacturer Maxim had to admit that there is excess inventory as a consequence of the slowing in auto sales and the build-up of inventory in that sector. That is in addition to data points from Qualcomm and others that indicate saturation and a budding inventory problem for cell phones. And I'm sure everyone already knows that PCs are basically nowhere.

I bring this up to note that the semiconductor food chain is uniquely situated for trouble, as bulls continue to ignore any and all problems in the belief that everything will be just fine. It will not be. Having said that, it is not exactly possible to pick on these stocks right now because they are such momentum favorites. One must either wait for them to break, own puts around catalysts, or own longer dated puts.

These Chips Are Made for Dipping Vulnerable stocks include Skyworks (SWKS), Qorvo (QRVO), ON Semiconductor (ON), Texas Instruments (TXN), Cirrus Logic (CRUS), and potentially even Intel (INTC) -- although it has different issues -- and others. I have very tiny short positions in a few of these names and may buy puts on a few others. That said, I have no intention of doing anything dramatic until it looks like it is starting to work, which at some point it will, and it will work big.

Away from stocks, green paper was a bit stronger, oil lost a couple of percent, fixed income was higher, and the metals were mixed, with silver losing 0.5% and gold gaining a little.

Positions in stocks mentioned: short TXN, CRUS, SWKS, QRVO, INTC. Long INTC puts.