"Respect is the prime ingredient of honor."

-- Christina Nikolov

Name/Ticker: KLA-Tencor (KLAC)

Date: January 2, 2003

Opinion: Bearish

Current Price: $37.36

Target Price(s): $27.52

Commentary:

Over the past three months, Wall Street's prognosticators lowered their 2003 earnings estimates for KLA-Tencor (KLAC) by 34.2%. Regardless, the shares are now 26.9% higher than they were three months ago and tout a p/e multiple of 37 based on fiscal 2003 projections.

KLAC soared 82% between the October 10th low and the December 2nd peak, then quickly shed 23% of its market value. That decline pushed KLAC back to fairly significant support near $35. (chart #1)

Since the stock is currently oversold on a daily and weekly basis, we see the potential for a brief rally to somewhere between $42.28 and $46.16. Coincidentally, several potential barriers reside in that area. The 200-day moving average is currently at $43.65 and a downside gap is at $42.28.

After encountering substantial resistance in the low to mid 40s, KLAC will probably retest the October 2002 low over the next several months.

To profit from the anticipated decline, we suggest the June 45 put (Symbol: KCQRI), which is currently offered at $10.10. If you wait until the underlying security confronts$42, this option might be trading closer to $8.



Chart(s):

#1) KLA-Tencor (KLAC) Four Month Daily Chart

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#1) KLA-Tencor (KLAC) Ten Month Daily Chart

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