From Briefing.com: The market took a dive on Wednesday and various explanations were offered for the sell-off. The most popular one was the concern surrounding OPEC's decision to cut oil production by 900K barrels per day starting Nov. 1. This decision prompted a spike in oil prices (+$1.11 at $28.24/bbl), and presumably, stoked concerns about a pickup in inflation and a slowdown in economic activity. Having done so, it provided participants with an excuse to take some profits, but like the dollar's weakness on Monday, the OPEC decision was given more credit than it was due for causing the pullback.
We say that mindful that the OPEC news was out before the start of trading. Although the market started the day on a lackluster note, it is a stretch to say it was fixated on the negative ramifications of OPEC's decision. After all, it wasn't until about 11:30 ET that the pace of selling activity quickened, and frankly, if the market was truly unnerved by the OPEC news, the selling activity would have been more pronounced as soon as trading began.
Now, we won't dismiss the notion that rising oil prices are bad for the economy and that OPEC's decision did weigh on stock prices, but we will dismiss the notion that OPEC's decision truly rattled the market on Wednesday. If anything, it precipitated the profit taking efforts that were then exacerbated in the wake of the indices falling through technical support levels and reports circulating that talked of asset allocation out of equities and into bonds.
Let's not forget either that the market is ripe for a period of consolidation, and at these levels, is prone to be stirred up more by negative news items than positive items. Hence, it didn't get any distance out of Cisco's (CSCO 20.32 -0.83) buyback announcement. Selling activity was broad-based, volume at the NYSE (1.56 bln) and Nasdaq (2.2 bln) was the heaviest it has been all week, and the technology sector paced the retreat as it, arguably, is the most over-extended area of the market. The latter consideration is why Briefing.com has been urging readers to lighten positions in highflying technology names.
Admittedly, highflying is a vague term, and in deference to a reader who wrote to us, we will simply say that the term is applicable to a wide range of technology stocks (too many to list here). Ultimately, each reader has to determine what highflying means to them, but clearly, an investor with a high risk tolerance will make a determination that is different from one who has a low risk tolerance.
One shouldn't forget, though, that gains of 20%+ in less than a year are the exception and not the rule to investing. There are, of course, deviations to the rule every now and then, and the economy emerging form a languid period of business investment is one of them.
Even so, you can't allow yourself to get too detached from reality by believing that the sky's the limit with a highflying stock. Too many people did that during the Internet bubble, and then, they didn't have any profits to show for their love affair with technology stocks because they held off on turning paper profits into actual profits. We realize that a stock must be held for more than a year to qualify for the lower capital gains tax rate and that taking profits now may not be the most tax-savvy move. So, consult your tax advisor on what would be the best strategy for you, but don't forget that the goal of trading/investing is to realize a profit. When the tech sector rallies like it has since last October, the opportunity to do so shouldn't be ignored or taken for granted.-- Patrick J. O'Hare, Briefing.com
6:01PM Wednesday After Hours price levels vs. 4pm ET: Sellers haven't missed a beat in the extended session, sending the after hours' indicators lower in an extension of regular session's bearish tone. Presently, the S&P futures, at 1007, are 1 point below fair value, and the Nasdaq 100 futures, at 1340, are 2 points below fair value. A handful of earnings warnings have compounded the negative mood.
To begin, casual diner Darden Restaurants (DRI 18.02 -3.35) topped the Reuters Research consensus EPS and revenue estimates in its Q1 (Aug) report, but lowered its Q2 (Nov) EPS guidance due to sales trends below its expectations at some of its businesses. As a result, the company now sees EPS of $0.15-0.18, which is below the consensus estimate of $0.22. Darden did, however, reiterate its expectation for EPS growth of 8-12% in FY04 (May), but that has not kept the stock from selling off 16% in the after hours. Competitors of DRI include the likes of APPB, EAT, and OSI.
Another company that has lowered its profit outlook is Bisys Group (BSG 15.48 -1.19). The provider of business services to financial institutions said it expected Q1 (Sept) EPS of $0.15, which is $0.07 lower than both its previous guidance and the consensus estimate. Management blamed the reduction on lower than anticipated revenue from its life insurance business, and to a lesser extent, continued softness in its education services division. Due in part to this, Bisys said that FY04 EPS (June) should be about $0.80-0.85, well below the consensus estimate of $1.08.
One company, though, that has moved higher on account of an encouraging earnings pronouncement is Cognos Inc (00C0 31.00 +1.74). The provider of business intelligence software announced a 33% increase in EPS to $0.20, a penny ahead of the consensus estimate, on a record Q2 (Aug) revenue result of $158.2 mln (up 23%). Additionally, Cognos said that it was affirming its Q3 (Nov) projection of revenues of $170-172 mln and EPS of $0.24-0.25.
Micron (MU 14.43 +0.33) stock is also up after the company exceeded the Reuters Research consensus estimate by $0.05. The developer of semiconductor products reported a Q4 (Aug) net loss of $0.20, and sales that rose 19% to $888.5 mln. Micron also announced that it was the recipient of $450 mln from Intel (INTC 27.91 +0.13) in exchange for the issuance of stock rights exchangeable into approximately 33.9 mln shares of the company's common stock.
Finally, Bed Bath & Beyond (BBBY 40.51 +1.09) kept is double-digit top and bottom-line streak alive with its better than expected Q2 (Aug) report. The company reported an EPS increase of 29% to $0.32 (consensus of 0.31) and a revenue increase of 23% to $1.11 bln. The specialty retailer capped off its strong report by raising its FY04 (Feb) guidance to $1.25, above the previous guidance of $1.23, on its conference call.
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar, and Guidance pages. -- Heather Smith, Briefing.com
Close Dow -150.53 at 9425.51, S&P -19.65 at 1009.38, Nasdaq -58.03 at 1843.69: The indices opened the session on a road heading south and never looked back... While in the absence of economic reports and market-moving earnings announcements there was no one catalyst for the session's negative bias, rising oil prices and valuation concerns were cited as contributing factors... The 4% spike in the price of crude oil to $28.24/bbl was incited by OPEC's unexpected decision to cut output by 3.5% starting November 1...
Valuation concerns are nothing new in the face of the market's sizeable advance off its March lows and the major averages trading near their 52-week highs, but they took their toll on today's market... Keep in mind, however, that the long-term bias for stocks remains favorable considering the historically-low interest rates and inflation, the virtual promise from the Fed to keep rates low for a "considerable" period of time, and the accelerating economy... Interestingly, three Fed Presidents talked up the economy this morning, including Texas Fed President McTeer, Minneapolis Fed President Stern, and St. Louis Fed President Poole, but had little effect on the market...
As such, the vast majority of the sectors experienced considerable selling pressure on relatively heavy volume (especially on the Nasdaq, where almost 2.2 bln shares were traded)... As a matter of fact, the only sectors to close the session with gains were the oil services and gold sectors... The advance of the oil services sector came in association with the spike in the price of crude oil, while the resilience of the gold sector was incited by the weaker dollar, which made the precious metal cheaper for overseas buyers, as well as the decline in U.S. equities, which had increased gold's safe-haven appeal...
Elsewhere, the bond market started the session lower, but finished with gains, which were at least partially attributable to asset allocation from equities into fixed income... The 10-year note closed up +19/32, bringing its yield down to 4.13%...NYSE Adv/Dec 1104/2168, Nasdaq Adv/Dec 969/2239
Advanced Micro (AMD) 11.55 -0.83: Soundview made comments Wednesday morning on AMD in light of its Athlon64 launch yesterday and raised price target to $15 from $13. Firm believes Microsoft's launch of the Windows XP 64-bit edition should create an interesting dynamic due to Intel not having a solution for a mainstream Microsoft product in 2004 which leaves AMD with an edge in high-end desktops. In addition, the analyst believes the shares should continue to outperform through the end of year on Athlon64 buzz and improving fundamentals in Flash memories.
Centillium (CTLM) 7.39 -0.21: Adams Harkness reiterated its Strong Buy rating and $15 target, saying that the stock's selloff is overdone and represents a buying opportunity; firm believes that the sell-off is a result of some confusion in the mkt regarding the rollout of new services in the Japanese mkt; although the Japanese subscriber additions saw a sequential decline during June and July, net sub additions picked up once again during Aug and there was a sequential increase in net adds; firm is encouraged by this uptick and believes that it is a precursor for future growth.
ESS Tech (ESST) 10.51 +0.36: Before the open, company said it sees Q3 revenue of $44-$48 mln vs earlier guidance of $37-$41 mln and Reuters Research consensus of $38.4 mln. Co expects to report pro forma, or non-GAAP, earnings of $(0.03)-$0.02 vs previous guidance of $(0.08)-$(0.03) and R.R. consensus of $(0.06).
Intel (INTC) 27.78 -1.16: After the close, announced that it has made a $450 mln equity investment in Micron (MU)
Micron (MU) 14.10 -0.57: After the close, reported Q4 (Aug) loss of $0.20 per share, $0.05 better than the Reuters Research consensus of ($0.25); revenues rose 18.8% year/year to $888.5 mln vs the $869.7 mln consensus.... was also announced that Intel (INTC) has made a $450 mln equity investment in MU
Transmeta (TMTA) 3.33 +0.11: SoundView comments that co's Best Choice award at Computex for mobile products (based on Crusoe processor) is quite amazing given the big thrust Intel is making with Centrino. Last week, Transmeta also announced teaming with Nvidia, a significant announcement in firm's view. Consistent with its valuation/price targets for other stocks in firm's universe, SoundView arrives at a 12-month tgt of $5 (using 2005 estimates).
August Tech (AUGT) 14.40 +0.16: Priced 3.268 mln share offering at $13.00 |
