Getting Chippy

 | Oct 18, 2012 | 1:30 PM EDT  | Comments
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Stock quotes in this article:

intc

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mlnx

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crus

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aapl

Intel (INTC) was drawing attention Wednesday to techs, and semiconductors, in particular. The DJIA component ended the session 2.5% lower, at $21.79. The slump followed the chipmaker's third-quarter report and disappointing fourth-quarter outlook, issued late Tuesday.

I haven't been a fan of Intel since the fundamentals began weakening in 2011. The stock rallied to a multiyear high of $29.27 in May and then began cratering. It's now about 26% off that May peak.

The semiconductor subsector is notoriously volatile, and many investors and swing traders prefer to move in and out of these stocks rather than treat them as long-term holds.

While mega-cap Intel showed poor performance, defying the market's uptrend between June and September, smaller chip-related companies fared better.

One name I've written about previously is Israel-based Mellanox Technologies (MLNX), which makes high-speed storage and connectivity gear for business customers.

The stock plummeted more than 17% after hours Wednesday, to $80.80, after the company reported its third quarter. It beat top- and bottom-line views, but issued weak guidance.

Before Wednesday's skid, the stock had been trading beneath its 50-day moving average. As of Wednesday's close, the stock had tripled in price thus far in 2012.

At this juncture, Mellanox's 200-day moving average becomes a key support line to watch.

Another chip-related name with good chart action has been Cirrus Logic (CRUS). The Apple (AAPL) supplier's relative strength line indicates better technical performance than the stock of its mega-cap customer.

Cirrus has confirmed that it will report its second quarter after the close on Oct. 29. It's expected to earn $0.71 per share on revenue of $179.77 million. Cirrus beat analysts' earnings views in the past two quarters and met them in the two quarters prior to that.

Cirrus has advanced 155% year-to-date. As a side note, Apple is up about 59% so far in 2012. It's not really a valid comparison, however, despite the supersized portion of media attention bestowed upon Apple's every tick.

With a market cap of $2.6 billion and around 2.4 million shares changing hands per day, Cirrus is the type of mid-cap that is often able to notch better gains than larger stocks. With fast movers such as this, however, there is often greater downside volatility risk indicated by a high beta. In this case, the beta is 1.92, a signal that the stock shows much more volatile trade than the broader market.

The fundamental performance tends to be erratic as well, with year-over-year earnings vacillating between declines and double-digit gains over the past four quarters and revenue growth slowing in the past two quarters.

The stock gapped up 23% after the company's last quarterly report in late July. This time around, the estimates call for significant year-over-year increases on the top and bottom lines.

I'm always cautious about buying in the weeks just prior to an earnings report. As of now, Cirrus is trading slightly below its 50-day moving average, so there is upside potential between that key price line and the stock's prior high of $45.49, from Sept. 7. This pause could represent a buy opportunity, although I would like to see the short-term moving averages cross above the longer-term lines before I attempted an entry.

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