Semiconductor Stocks: Semtech Corp. Said To Be The Best Wealth Builder Now – Seeking Alpha

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Investment Thesis

Market-Makers every day are called on to provide temporary capital liquidity to balance supply and demand created by volume block-trade transactions ordered by institutional investors’ attempting to manage multi-billion-$ portfolios. When MMs can obtain hedging protection from the derivatives-securities markets for their temporarily at-risk firm-capital they will do so. Costs and structures of such deals form market-validated price-range forecasts for stocks so involved.

Semtech Corporation (SMTC) is an interesting example of what we can see.

Please do not jump to conclusions about what these pictures show

Figure 1 is NOT a conventional backward-in-time-looking “technical price chart.” Instead, it is a recent history of daily forward-looking price range forecasts made by well-informed, experienced market professionals. With evaluations of how well such forecasts as those of today have performed in the past 5 years.

Figure 1

(used with permission)

The vertical lines of Figure 1 span the range of price implied to be likely by the actions of Market-Makers [MMs] as they hedge the firm’s capital required to be put at risk. Their commitments are needed to balance buyers and sellers when “filling” client block trade orders from big-money-fund portfolio managers.

The implications of these actions have been known to sometimes vary significantly from forecast statements made by the “research” departments of the same firms.

The vertical forecast lines are split into upside and downside prospects by the heavy-dot end-of-day market quote for the issue on the day of the forecast. A measure of the imbalance between up and down implications is the Range Index [RI], which tells what percent of the whole forecast range lies to the downside. Here for Semtech Corporation (SMTC), the RI is 2, indicating 98% of the full range of its coming prices in the next few weeks to months expected by the market-making community would be higher than the current price, and only 2% might be lower.

The “thumbnail” picture at the bottom of Figure 1 displays where today’s RI relates to the RI experiences of the subject over the past 5 years. Positions to the left of the distribution’s peak are favorable implying more frequent coming increased prices; to the right of the peak may be not so.

The row of data between the two pictures of Figure 1 tells of the prior experiences of forecasts like the one seen at this point in time. We use the RI to see how well the MMs’ prior forecasts have worked out when a simple, practical portfolio …….