Sector Wars: Return of the Semis

While the market experienced many gyrations last week, it ended the week not much changed from where it began, which did little to affect the still negative overall trend picture. However, one potentially bright spot was the relative out-performance of technology stocks compared to the broader market. While most of the major indices were down or unchanged for the week, the NASDAQ managed a gain.

And my weekly scan for stocks showing recent relative strength did bring up a few more tech and semiconductor stocks than it has recently – mostly reflecting a move up from very oversold conditions. Examples include semiconductor makers Analog Devices (ADI) and Cree (CREE), and chip-equipment-related stocks like Cymer (CYMI) and Photronics (PLAB).

Just as tech stocks broke down prior to the rest of the market, it’s possible they may be signaling an approaching upturn. However, until the market can demonstrate enough strength to change the weekly trend status to positive, I have to continue to assume the major trend is still down.

Last week was also options expiration week, and I went into it short October puts in two stocks: Allstate (ALL) and General Motors (GM). As expected, the October 47.5 puts that I had sold last month on ALL expired well out of the money, resulting in a 1.6% net 30-day return.

The October 22.5 and 25 puts I had sold against GM also expired worthless, resulting in 11- and 16-day net returns of 1.2% and 1.5%, respectively. As always, the return on these “cash secured” put sales was based on the premium received from the sale of the options (minus commissions) against the unmargined capital set aside to pay for the possible assignment of the stock.

Last week I also added a new position. On Friday I sold some November 20 puts on Pfizer (PFE) as it sold off heavily after the company reported a decline in earnings and canceled its forecasts for the next two years. Merck (MRK) reports on Monday, and I’ll be looking to sell puts against that stock on further weakness as well.

In addition, I’ve updated my watchlists to reflect recent changes in many individual stocks. I’ve also added Verizon (VZ) and – for now at least – dropped Burlington Northern (BNI), Merrill Lynch (MER), and Telefonos De Mexico (TMX):

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