The concern now is that the overall market may be in the final QE2-fueled run-up and the groups not leading have run out of time.
The generally held belief, held by individual investors and managers, is that they will be able to judge the crowd's emotion sometime in May or June to avoid an expected pre-emptive sell off.
This type of thinking leads to a narrowing of leadership as the game of chicken goes on while anything lagging is discarded with enthusiasm.
If the weak get weaker while the strong get stronger it can be a very profitable market. More on this next week.
Cree's action last week was certainly noteworthy, here's TheStreet's Eric Rosenbaum noting it:
LED lighting sector lightning rod Cree(CREE_) provided its shareholders with another "gut check" day on Wednesday. An inventory glut in the LED market that is lasting longer than expected, and steep pricing declines, forced Cree to lower its existing top line and gross margin guidance.
The trading action after the Cree pre-announcement seemed to suggest that a good number of investors had run out of patience, with more than 19 million shares traded on Wednesday when Cree shares fell by more than 12%, and notably, fell to a new 52-week low, below the $43 mark (Cree shares would finished the week at $44.85).
Just about a year ago, in the middle of April 2010, Cree shares were above the $80 mark. It's been up and down, and then up and down again, since that year-ago high mark for Cree shares. Even before Wednesday, Cree shares took a big hit since its January earnings, when it first reported the excess inventory in the LED market. Cree shares had been as high as $72 in December 2010.
So has the death knell been sounded for Cree in the LED lighting sector? Some headlines seemed to insinuate that on Wednesday.
Another way to ask this question -- the more important way, actually -- reaches to the heart of the debate that has long raged about the Cree outlook: is the latest stumble for Cree a sign of structural weakness in the long-term bullish LED sector thesis, or a short-term supply/demand hiccup in a high growth sector that is distinct from the Cree long-term story? After all, visibility is notoriously dim in the LED space and it's possible that Cree was simply overaggressive in expectations about recovery from the inventory glut it already told investors was taking place last quarter....MUCH MORE
