General Commentary
by Robert Walberg
It's a sign of the times when traders cheer a 78% drop in year/year earnings, but cheer they did as Cisco
beat the consensus estimate by two cents in reporting a quarterly gain of $0.04... In year-ago period
company earned $0.18... Sales were up 3% on a sequential basis (reversing two quarter trend), but off
32% v. year-ago quarter... Other notable nuggets from the report -- positives: inventories fell, backlog
grew slightly, DSO fell, book-to-bill for the quarter was above 1.0, claims to be capturing market share;
negatives: more than half of quarterly gain was due to interest and other income, gross margins remain
well below year-ago levels, visibility limited to month-to-month and reiterated that long-term growth
target of 30%-50% looks unattainable (nooo!)
While there were a few warts in the Cisco report, and while the business continues to operate well below
peak levels, there were enough positives in this report to reinforce market perceptions that sector
conditions have stabilized and that better times are ahead... Consequently, look for CSCO earnings to
give sector another boost in today's trading... Networking and communication chip companies likely to
be biggest sympathy plays.
With Nasdaq hovering right near psychological resistance in the 1800 area and more significant
resistance in the 1830 range, question becomes how much further can index travel on assumption of
improved industry conditions/earnings? At this point, advance must still be considered nothing more than
a bear market rally, as Nasdaq remains about 100 points away from taking out long-term trendline
resistance... Until that happens have to assume we're running on borrowed time... Fact that economy
continues to decelerate also gives us pause, especially now that consumer beginning to seriously rein in
spending.
There will be some very good trading opportunities in the days and weeks to come - such as the
AMCC's of the world today - but this is still a market traders should only flirt with, not marry. |
