TRID - Bad news continues

Downgraded today and dropped 17%
"San Francisco-based Thomas Weisel Partners downgraded Trident to "peer perform"' from "outperform" over concerns about increased competition"

In effect the stock dropped 17% on an expected 10% earnings drop. That's 50% in 3 months.

"The options-grant issue remains potentially expensive, time-consuming and will scare off some institutional investors, says Wedbush Morgan's Berger. But market trends in flat-screen TVs are the most important part of Trident's near-term story...."My response is, [if that happens], is that going to change how many TVs are people going to buy?" he says. "I don't think so."

So the question is - are TRID sales affected?
Because, at the revised and lowered valuation, TRID now has a 18 P/E. For a company still expected to grow 40%+.

We've seen how strong flat panel TV sales have been. We've seen how TRID has gained market share.
I am riding this out for now.

New Stops

Here are the new stops. Anything in red is new. I am going to keep it simple - a trailing 10% +/- STOP.

AMX $30
DIS $28.5
EMT $14
ESV $42
ET $20.5
GRP $41
ISIL $21.5
JBLU $11.5
JLG $20
MDR $41
TIE $31
TTI $27
VOL $42.5
ZRAN $22

Week 4 LiveRocket Turbo Performance Up 2.7%

I am still finding my way with Turbo. The pace of the trading is as important as the trades themselves.

AMX Up ~2%
BMHC Puts - Flat
DO Up 8% Energy sector recovery is part of this move
GRP Up 3%
JNPR Puts Oct $14 Flat
NUAN Up 6%
STX Up 8%
TIE Calls - Down 3%
TTI Up 5+%
ZOLT Up 1%
ZRAN Down 2%
TRID Calls (Jan 22.50) Down 20%

TRID Calls are killing us. I am willing to wait, but am not happy.

Week 34 LiveRocket Performance - Up 4.2%

Week 34 (versus previous week)
Dow 1.47%
S&P 2.09%
NASDAQ 2.4%
LiveRocket 4.2%

YTD
Dow 4.04%
S&P 1.76%
NASDAQ -1.5%
LiveRocket 27.68%

Since Inception (Nov 4, 2005)
Dow 6%
S&P 4.2%
NASDAQ 0.1%
LiveRocket 39.84%

We were stopped out of RFMD, leaving us with a cash position of $3,236.02.

Another nice week. I don't want to suggest that we are back on track to a rebound. There is still too much nervousness about the state of the business cycle, possible interest rate moves, and so forth. Volume is very low, so it's difficult to take things seriously yet, especially with the short July 4th week.

I mentioned that investing in semiconductor stocks was part of a perception that there is undervalued strength and that money will flow back in. I recognized that it is a contrarian move, and it just got more contrary. In the face of strong Semiconductor Industry reports, chip stocks got clobbered today. Maybe it was premature to make the move.

I think today was a North Korea Day. Japan and South Korea were incredibly spooked. Also Japan's Bank is going to raise interest rates. That is creating a lot of nervousness. At the same time, manufacturing spending is rising - a great thing for the economy's strength and a bad thing for inflationary pressure.

LATIN AMERICAN TELECOMMUNICATIONS
AMX Up 1.5%. Mexico is in the middle of an election crisis, so we must wait for that to be resolved.
EMT Up 5%. The reason for buying EMT was a bid by TELMEX for the company at $16.50. That's a 10% upside potential.

ENERGY STOCKS
More acquisitions. Excel coal is part of a bidding war to be acquired. It's a hot market.
ESV - Up 7%. There is a shortage of Oil rigs. In fact, a bidding war is leading oil riggers to rent their rigs to the highest bidders.
GRP - Up 3+%.
MDR - Up ~1%
TTI - Up 13%

HIGH TECH
Nothing but continued weakness. And I was feeling so positive.
ISIL Down 2%.
ZRAN Up 3+%. Don't get too excited - down 10% because of new stock option issues.

VARIOUS
DIS Up 3%. Cars did not take off as strongly as expected. Now it's all about Pirates
ET - Up 3%.
JLG - Up 16%. Nice to see some strength behind the move as well.
JBLU - Down 4%. Higher prices are on the way, and that should help margins.
VOL - Up 2% Tight employment numbers are good for employment agencies
TIE -Up 6% Wait and see mode still

Our Chip Stocks

This is why I like chip stocks:
"The Semiconductor Industry Association said chip sales rose to $19.7 billion in May, 9.4% higher than last year and 0.7% higher than in April. Driving growth were sales of cellphones and other consumer electronics devices. Sales of analog chips grew 21.5% from the previous year, while digital signal processor sales grew 13.7%. The association added that sales of DRAM computer memory chips rose 13.7%, but PC-microprocessor sales fell 2% due to excess inventory"

ISIL is an analog chip company. They are willing to take a lower margin for the business, and that model is working.
RFMD was our foray into cell phones, but the idea that they missed Nokia sales is scary.
ZRAN as well as TRID are chip stocks.

What is most fascinating to me is that we have sequential growth in sales from April to May and strong Y/Y growth. Considering the expected PC slowdown and iPod sales slowdown, this is very good to see. The bulk of the chip sales are commodity chips like DRAM and Flash memory and such. Those chips are falling in price. In order for total sales to be up, the price of other non-commodity chips must be soaring.

This is why I am bullish on chip stocks. Pundits expecting a slowdown in consumer spending are being contradicted by consumer spending in the retail markets, consumer financing of spending remaining strong, and strong demand for components. Semiconductors are not just-in-time components but close to it. This demand reflects real, near term demand for end products. And that's a good sign.

You have 2 weeks to prepare

Starting July 19th we have a week of rockiness. That's when we get a peek at the 2nd quarter of housing.
July 19th - New Home starts
July 25th - Existing Home sales.
July 26th - New home sales

To put things in context, we know that the real estate market is softening. Th eonly question is rate and degree. Hopeful investors want a levelling off. Skeptics like me expect a deep drop as the supply/demand curve equilibrium flips: supply radically exceeds demand.
* Surge in supply sparked by rise in inventory(new homes and dumping by speculators).
* Demand drained by lack of buyers (many folks already bought, mass exodus of speculators, fear of buying an eroding asset)

As this transitions starts to take hold, we have seen mixed signals. Prices have risen, sales have been solid, and earnings are strong. Peeling back the layers, we see how short-lived these datapoints are. All strength is really from results in the first quarter - before the 0.5% rate hike. And it isn't that strong - inventory is doubling and so is the sales cycle.

As homebuilders see the rapid deterioration of the market, they will start exiting
1. Cancel new orders - land values will start to drop, demand for raw material will droop, unloading of existing raw goods into grey markets, and contract manufacturers will struggle.
2. Finish existing work in process - Get it done. This will drive short term building stats up: homes completed, manual labor for construction will firm up which will help contract manufacturers.
3. Dump existing homes - Every month is probably ~2% of housing price drop. That is bottom-line profit evaporating.

I do think that residential construction companies have further to fall. This quarter will be the last hurrah.

I called this out over 6 months ago, and it is playing out exactly as I expected. So what to do?

First of all, the reports comingout next month will be shocking. We will get a chance to see the price drops by city. This is a critical period for several reasons
1. Reflects current market status: The range of April~June really reflect houses that were sold February ~April (assuming a 60 day lag between going into escrow and prices being recorded).
2. Impacts future sales: if homebuyers see slowing sales and falling prices, then they will ask for better prices and terms. The same for sellers - they will get nervous and become flexible. This all translates into a lower price and feeds the cycle of bubble price unwinding.
While we can easily find great stories and anecdotes about prices plummeting in Boston and San Diego, this report moves from those anecdotes to a measurable trend.

I don't think that the stock market is ready for the results or the economic implications. I propose the following steps:
1. Tight stops - The market is recovering from overselling. This week is a short week. There really hasn't been a lot of convincing volume purchasing (with some notable exceptions). New stops on the way from me.
2. Zero tolerance - The market is afraid. Any company without great results will be slaughtered. ATI is one example (although it has begun to recover a bit).
3. Select the market, then the stock:
* Financial companies are risky. They are exposed to the housing financing. Plus, as this bubble unwinds, I don't doubt that lawsuits will erupt against bankers who twisted the arms of appraisers to pump up the price.
* High tech is soft. I bought semis as a contrarian move of sorts. My thinking was that sector rotation could bring them back into favor. So far, it hasn't, but we'll see. Frankly, I wan't encouraged by the lack of movement by ISIL & TRID. They aren't as beaten down, but neither are they up.
* Energy. The new reality is $70+ oil. That will spur investment in drilling and exploration. Notice how oil companies like Chesapeake are down whereas energy equipment and services are up.
* Mobile Entertainment. Content providers like DIS are looking good. AAPL solidified the standardization of the delivery business model (they didn't invent it - Napster and others had infrastructure for delivering the content). The next wave will be about broadening reach: moving to cell phone for mobile viewing, for example. This is high tech heaven - investment in delivering and monitoring content will be huge and disruptive. If this becomes a slugfest between the Comcasts and ATT's of the world, the equipment providers will win.