Friday, October 3, 2008

Inflation and Deflation(Commodites vs Semis).

My assumption still stands: Semi's will outperform over near term and long term. Below is a chart comparing the Dow Jones-AIG Commodity Index (DJI) vs. PHLX SEMICONDUCTOR SECTOR INDEX (SOXX).

Notice the difference over the last 5 years: inflation was beneficial to commodities, while it hindered any sort of bull market for semiconductors. We have seen commodites prices ease(deflate) these last couple of months, and that means we are deflationary and Semis will counter - the next cyclical turn will have semis leading as deflation sticks around and commodities consolidate in its secular trend. This does not mean commodities will completely lag, but rather Semis should outperform in the cyclical trend, while underperforming on the secular trend.

You can view the full analysis blog called "The other Commodity" here.

A short term triangle has formed on MU with good volume. Trade the bounces while keeping a long term position on hand.

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