The Chart du Jour

Micron: Premature Bulls

August 13, 2001

By, Barclay T. Leib

Chart produced using Advanced GET End-of-Day

Well, this morning Goldman Sachs joined Merrill Lynch and CSFB by strongly recommending chip stocks. They did so on a Monday morning, likely trying to get a shot-gun positive start for the new week.

But I for one, don't quite buy it. Chip stock valuations are still exceedingly high in terms of long-term price-earnings and price-sales multiples, and industry inventories are still exceedingly high. These brokerage house recommendations have little to stand on except a wing and a prayer that "The worst is now likely over." Solid fundamental justification for these bullish prognostications certainly doesn't exist.

Also, if anyone from Goldman would take the time to do some very basic technical analysis, the mild upward sloping wedge pattern that Micron has been in for sometime is not a bullish formation. Instead, it will likely end up representing a 4th wave corrective period before at least one more new plunge lower. Using Fibonacci bands, we see a minimum downside target for Micron of $21 a share.

Don't believe in Wall Street's Pied Piper analysts, remembering that they too work for firms that are struggling to meet earnings expectations these days. These firms appear to believe that by touting chip stocks, they can help both their clients and their own bottom line. Instead, they are likely digging themselves an even bigger hole of non-believability.

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