From Briefng.com: 7:31PM Weekly Wrap: Early on it looked like the DJIA might snap its 5-wk losing streak, as the bellwether index enjoyed a huge gain Tuesday on news that Iraq and the UN had come to terms on weapons inspections. However, a steady stream of earnings warnings and a few disappointing economic releases quickly eroded the gains. When it was all said and done, the indices finished the week in the red.
Retreat was led by the banking group, as warnings from Bank of New York (BK) and Comerica (CMA) sparked anxiety over loan quality. The Philadelphia Bank Index (BKX) tumbled nearly 9% this week alone. Index is fast approaching its July lows. Considering that financials often lead the market, a break of this floor in the week ahead would be a decidedly bearish signal for stocks in general.
Aside from the earnings-related weakness in the banking sector, the other developing story is the persistent declines in the cyclical stocks. Given their sensitivity to the economy, market appears to be telling anyone who will listen that a double-dip is a very real possibility. Among the cyclical groups to take a hit this week were Forest Products, Steel, Airlines, Autos, Aluminum, Coal and Tires.
Now Briefing.com may just be stubborn, but we continue to think the market is overreacting to the mixed economic data much as it did back in the early 90s when investors routinely called for a double-dip that never materialized. Admittedly the economic data are uneven, but to our mind the balance of the reports suggests that the economy is muddling along just fine. Growth of 2%-3% is not only achievable but probable. If our assumptions are correct, then the current knee-jerk reaction in the cyclical sector provides a decent long-term (re)entry opportunity.
Pulling back and focusing on the week ahead, Briefing.com sees potential for the tone to improve as we transition from warnings to earnings season. Not expecting anything huge, but market has been quick to price in the less optimistic earnings picture. With much of the bad news already reflected in the market, the potential for stocks to move higher on any positive surprises (real or imagined) has increased significantly.
Among the stock's due to report next week are Pepsico (PEP), Abbot Labs (ABT), SunTrust Banks (STI), Genentech (DNA), Winn-Dixie (WIN), Yahoo! (YHOO), Costco (COST), First Data (FDC), Network Associates (NET), Juniper Networks (JNPR) and General Electric (GE). For the complete list of stocks scheduled to report earnings next week, see Briefing.com's Earnings Calendar. With expectations having come down hard over the last month, the news merely has to avoid being rotten to be a short-term positive.
Robert Walberg, Briefing.com
2:58PM Chip Equip Cos : Morgan Stanley expects stocks to remain under pressure in H2 from a muted seasonal uptick in demand, equip pushouts/cancellations, declining bookings, falling utilization rates, and cuts to semiconductor capital spending plans. Firm expects reported Q3 orders to be down 20-30%+ and cuts estimates on LTXX, KLAC, KLIC, NVLS, LRCX, KLIC, TER, and VSEA.
1:08PM EMC Corp (EMC) 3.82 -1.19: In its pre-open notes, Lehman Brothers reiterates their belief in EMC's turnaround following co's Q3 warning last night. Firm stresses EMC is taking steps in the right direction by reducing its fixed cost structure and increasing its share buyback program; admits that additional cost reductions may be necessary to drive earnings and move the stock higher. Lehman adds that EMC's news may have a negative impact on MCDT and to a lesser extent other networking component cos ... EMC falls off close to 24% despite defense.
12:21PM Emulex (ELX) 7.97 -2.06: In pre-open note, RBC Capital Mkts downgraded to SECTOR PERFORM from Outperform and lowered price target to $14 from $25, due to chance of further competitive pressure within HPQ. Firm noting that, QLogic recently won a key HBA program at HPQ for its Unix server platform and is now in position to challenge ELX's NT revenue at this customer; channel surveys suggest tepid sales forecasts for calendar Q4:02 within storage and SAN industry; believes that these issues will impact Emulex's growth prospects, particularly in its FY04 (June). Also, CE Unterberg Towbin downgraded to short-term MKT PERFORM from short-term Buy... ELX currently trading down 20.5%.
12:12PM Brocade (BRCD) 5.86 -0.66: Stock trading down 10% today after warning from EMC and a couple of downgrades. RBC Capital Mkts downgraded to SECTOR PERFORM from Outperform and lowered price target to $10 from $22. Firm citing: surveys of channel forecasts suggest slower sequential progress for storage and SAN segment in calendar Q4; belief sales of BRCD's 12000 enterprise switch are behind plan at key accounts such as HPQ; McData has captured a key 32-port OEM win at Dell; and have seen some evidence of price declines in the sales channel. Also, CE Unterberg Towbin cut to short-term MKT PERFORM from short-term Buy.
12:45PM Integrated Circuit increases buyback by an additional 1 mln shares (ICST) 13.00 -1.04:
10:08AM Nasdaq Composite Intraday : -- Technical -- Inches to a fresh multi-year low after the opening rally failed at resistance (09:29 comment). Although follow through selling has been limited, need to see gains back through 1165/1168 and 1176 to improve the intraday bias. Failure leaves the door open to further downticks with initial supports at 1150 and the 1143/1140 area.
9:59AM Sector Watch: Semiconductor : Sector index (SOX at 230) bounced after a test of its Sep and 52-wk low (231.59) but has recently penetrated this floor. Pressuring the index this morning are: TER -4.8%, NVLS -2.7%, LSI -2.3%, KLAC -1.6%, LSCC -1.3%, BRCM -1.7%, MXIM -1.9%. Still on the plus side but off their highs are INTC +1.3% and ALTR +0.1%. Next support for the index is at 229/227 and the 220/218 area.
8:14AM Morgan Stanley cuts estimates for semi equipment co's : Morgan Stanley expects semi equipment stocks to remain under pressure in 2H02 due to a muted seasonal uptick in demand, equipment pushouts/cancellations, declining bookings, falling utilization rates, and cuts to semi capital spending plans; cuts 2002-04 ests for ACLS, AMAT, CYMI, DPMI, HELX, KLAC, KLIC, LRCX, LTXX, NVLS, PLAB, TER, and VSEA.
7:12AM Dupont Photomask cuts Q1 outlook (DPMI) 22.16: Semiconductor equipment maker guides Q1 to a loss of $0.30-$0.32 on revs of $84 mln -- Multex consensus -$0.06 and $90.92 mln. Notes that EPS negatively impacted by $0.06 due to change in tax rate. "The semiconductor industry continues to suffer the effects of the most severe and prolonged downturn in recent memory."
Advanced Energy (AEIS) 7.18 -0.80: Morgan Stanley downgraded to UNDERWEIGHT from Equal-Weight and cut 2002-04 estimates based on the belief that the co's actions to streamline its cost structure will not keep pace with the rate of order deterioration; weak fundamentals, poor operating leverage, and integration risks are likely to prolong AEIS's underperformance relative to OEM equipment makers.
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We are getting closer to at least another short term bottom Michael. Could we hit 6500 on the DJIA? Sure I agree we could but not necessarily on this next bottom.
RtS |
