Dog Of The DOW

[Peter123]

I was thinking during the last blowoff phase semiconductors may rotate up; INTC is now the dog of the dow and hitting a point where it rallied off of in the past. I was thinking of buying some April calls. This would be a play on sector rotation. Anybody have any thoughts?

[HenryTo]

Peter123,

This makes logical sense - as unlike the airlines (which have been having a very good "blow off rally" of their own off the October lows) many of the semis are:

1) Experiencing great cash flows
2) Somewhat undervalued in a traditional sense
3) Now significantly less leveraged than they were in 2000 (as a group, they have paid off 30% of their long-term debts since the bubble in 2000).

As a group, they have also been hit hard recently because of the INTC news. Like the airlines, semis in general are commodities, and as a group, they are thus a cyclical and tends to rally in the final phase of a bull market.

That being said, the first point to buy would be in a general oversold market condition - similar to buying the airlines in October of last year. At this point, the market is still pretty overbought - so timing is of the essence. I would prefer to wait here. Buying April calls is definitely not my cup of tea!