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from Prudentbear.com
Market Summary May 9, 2001
Posted Daily Between 5 and 6:30 PM EST
by Lance Lewis
Bad News From CSCO Matters
Asia was mixed last night with Japan falling a percent back to the
14,000 level on the Nikkei and Hong Kong moving up a hair.
Europe was down about a percent this morning, and the US
futures were limit down on the NASDAQ after CSCO, MXIM, and
NSM all puked up hairballs last night. We gapped down big on
the open, bounced, drove a little lower, and then blasted off to the
upside. About 30 minutes into the jamjob, GE reconfirmed its
earning guidance (which it certainly better since it trades at 40x
earnings), and that was enough to push us vertical and into the
green on the Dow and S&Ps, as it looked as if the bulls might
have muscled their way out of having to deal with reality once
again. The NASDAQ, however, would not play along and
remained in the red all day. We peaked out on the GE fumes
about mid-day and began slowly sliding back down. GE went red
with a little more than an hour or so to go, and we broke sharply
to near the lows of the day before the usual bounce into the
close. Volume was just OK (1 bil on the NYSE and 1.7 bil on the
Naz.) Breadth was slightly positive on the NYSE and slightly
negative on the Naz. Big winners were in the gold shares as the
HUI rose 10 percent. Big losers were in the semiconductors as
the SOX lost 3 percent.
As everybody now knows, CSCO reported last night, and the
news was not good. Without their massive inventory charge,
they made 3 cents. Including the charge, they lost 37 cents. More
importantly, their guidance was cloudy to say the least as they
still claim to have “no visibility.” Chambers did have the following
to say though: “What we have clearly seen over the last several
years is the speed at which this new economy can move in both
directions. Changes that used to take place over multiple
quarters, or even over years, now take place within months. It is
also now clear to us that the peaks in this new economy will be
much higher and the valleys will be much lower, and the
movement between these peaks and valleys will be much faster.
We are now in a valley much deeper than any of us anticipated
and we believe the basic issues are macro economic and capital
spending related.” Huh? Well, I guess that clears things up? Besides
leaving me wondering what in the world he’s trying to say there, it sure
sounded like he was describing a very cyclical company. Other
cyclical-type companies typically have earnings multiples in the single
digits. If technology is cyclical (which it is), CSCO still has a long way to
fall just to compress its current trailing earnings multiple of 35x, not to
mention the current contraction in earnings that it is undergoing. So,
anybody looking for Chambers to say soothing words like “a bottom is
near” or “we happened to clean out our excess inventory in the last 2
weeks” was disappointed, and CSCO ended down 6 percent on the day.
NSM also warned last night, saying: “Earlier in the quarter, we had
some optimism, and saw the business beginning to climb the
stairs. Then just in the last couple of weeks the stairsteps took
the wrong direction. We started the quarter with much more
optimism than we finished it with.” MXIM reported last night and
also guided lower. Consequently, it wasn’t a good evening for
what’s going on out in the real world beyond the charts and
graphs and brightly blinking stock quote computer screens.. All
this bad news from the world of reality in tech wasn’t about to
stop speculators though that tried to “will” the tape higher this
morning. NSM actually spent most of the day up after opening
lower and closing unchanged. The jam never really got going
though as the tape just appeared too tired to get up and run. We
had finally reached exhaustion it appeared. By the end of the
day, tech was solidly in the red, although there weren’t any large
movers to the downside that I saw. The key I think was that bad
news mattered, or rather it mattered in time for the close.
Financials were heavy on the day, although not by much. The
BKX and XBD both fell a hair. GE closed down a hair after trading
up a couple percent on its confirmation of previous earnings
guidance. Retailers were lower again as the RLX fell a percent.
Oil rose 84 cents. The XOI and OSX both rose 2 percent. Gold
rose 5 bucks, and lease rates were quiet. The HUI rose 10
percent to a new high for the move on heavy volume. Obviously,
yesterday’s quotes we looked at concerning the gold market
bring the old adage to mind of “never short a dull market.”
Whether this move in gold and its shares is hinting at a coming
break in the dollar or not remains to be seen, but it’s certainly a
warning sign and a step in the process of investors voting the
dollar “off the island.” The US dollar index fell a hair, and the euro
moved up an eyelash ahead of tomorrow’s ECB meeting.
Treasuries were a little higher again.
Tomorrow, Uncle Al will be giving a speech somewhere, and you never know
what will pop out of his mouth. The fact that GE’s good news was sold today,
and the bad news out of CSCO, NSM, and MXIM weren’t ignored, as they
would have been a week ago, could be another sign that this rally has run out
of steam. The damage done today was not enormous, but that doesn’t mean
that it’s not meaningful. What we’ll want to watch for now is whether we see
any acceleration in the move down tomorrow, and whether the dollar comes
along for the ride or not. |
