From Briefing.com: Updated: 17-Apr-03 - General Commentary - One of this year's broader themes has been the Nasdaq's relative strength versus the Dow. It turns out Wednesday's price action matched well with that overarching dynamic -- the Nasdaq posted a modest three-point gain on the day, while at the same time, the Dow took a noticeable 144-point hit.
Outside of the day-to-day market noise, frequent readers know we've been harping on the Nasdaq's firmer tone for some time now. In fact, our bullish take was initiated back on March 13th with the index around 1279. Yet based on the current picture, the disposition of the Nasdaq Volatility Index (VXN) has become a more recent point of interest.
Under typical market conditions, the VXN tends to be inversely correlated with the Nasdaq and serves as a measure of market uncertainty -- more typically referred to as market fear. Without making things complicated, the index measures the variability in options prices which tend to rise as the fundamental backdrop becomes less certain.
Yet before we assess this chart of the VXN, note that in the preceding paragraph there were several carefully chosen words -- "Under typical market conditions, the VXN tends to be inversely correlated with the Nasdaq." The question in the present case is two-fold: 1) whether these are typical market conditions, and 2) whether the two measures have been correlating inversely?
In the chart below, you can see the Nasdaq's most recent extreme high point was touched at 1521 back on December 2nd. At the same time, the high point on the Nasdaq Volatility Index occurred on December 5th. From the standpoint of time, those two extremes came in very close to a direct match. Put another way, the two measures were characterized by a positive correlation rather than an inverse correlation.
But what about more recently? For the month of March, the VXN touched its highs over a three-session span ranging from March 18th to March 20th. At the same time, the Nasdaq touched its high point on March 21st. Again, this was instance in which the two measures were positively correlated rather than inversely correlated.
So the conventional read on the VXN would suggest the Nasdaq may be setting up for a notable fall in the not-too-distant future. Yet assessing this relationship in its more recent context places the conventional interpretation in question. In fact, it wouldn't be a reach to contend the exact opposite -- the index may be setting up for a pronounced move higher off that Island Reversal pattern addressed on April 3rd. Under this view of the world, the bear market mentality has so firmly entrenched itself, that moves to the upside are triggering the higher fear readings.
In the end, this is one of those unusual instances in which the point is there isn't a conclusive point. The VXN is one indicator among many, and its more recent disposition suggests those other indicators may be worth a good look.
From a more practical perspective, note Thursday marks the final trading day of the week which means volume may dry up towards the latter half of the session. If this proves to be the case, keep in mind the Philly Fed Index is due out at noon ET. This is the first of the regional manufacturing surveys for April, and it could disproportionately impact the intraday price action. Light volume or not, the Philly Fed also has the capacity to move the market on merit -- one of those reports the active trader will want to have an eye on. -- Mike Ashbaugh -- Briefing.com
CHRT Chartered Semi reports, guides (3.78 +0.17) Reports Q1 (Mar) loss of $0.30 per share, includes ex items and is likely not comparable with the Multex consensus of ($0.40); revenues rose 23.0% year/year to $103.8 mln vs the $99.4 mln consensus. For Y03, company sees loss of $0.39-0.43 vs Multex consensus of ($0.39). In touch with Multex to confirm actual.
5:56PM Advanced Micro says ASPs still going down (AMD) 7.27 -0.33: -- Update -- On call, AMD says ASPs are reasonably stable, but they're still going down given the competitive environment... Expect flash revenue to grow in Q2 over Q1
5:45PM Advanced Micro on track to be cash flow positive (AMD) 7.44 -0.16: -- Update -- On call, company says they're gaining flash market share... On track to be cash flow positive by 3Q03
5:39PM Advanced Micro on track to achieve breakeven mark (AMD) 7.25 -0.35: -- Update -- On call, AMD indicates that they remain on track to achieve the breakeven point below the $800mln mark in 2Q03
5:39PM Broadcom comments on Q2 visibility (BRCM) 15.26 +1.26: -- Update -- On call, BRCM says visibility into Q2 (June) is about the same as visibility going into Q1 (Mar) was... As for Asia, BRCM said Asia was about 25% of business in Q1 (Mar), and expects that percentage to accelerate going forward.
5:07PM Sun Microsystems expects some growth in Q4 (SUNW) 3.33 -0.02: -- Update -- In response to question about seasonality of revenues, SUNW says it would expect some growth in Q4 on a sequential basis, but it isn't going to give a specific percentage... in Q3, SUNW reported revenues of $2.79 bln; current Multex consensus revenue estimate for Q4 (Jun) is $3.27 bln.
5:04PM Broadcom sees strength in Asia (BRCM) 15.17 +1.20: -- Update -- On call, BRCM says it sees the potential for a $1 bln revenue stream from Asia in the 'not so distant' future.
4:57PM Broadcom guides Q2 revenues above consensus estimates (BRCM) 15.17 +1.20: -- Update -- On call, BRCM guides Q2 (June) revenues to up 12-14% from Q1 (Mar) levels, or approximately $366.8-373.4 mln (Multex of $321.4 mln).
4:48PM Sun Microsystems will continue to price aggressively (SUNW) 3.33 -0.02: -- Update -- On call, says it will continue to price aggressively in Q4 (Jun) and will manage its capex to under $100 mln... notes that it is seeing some signs of renewed investment in the telco sector
4:36PM Skyworks reports in line with consensus (SWKS) 6.26 +0.37: Reports Q2 (Mar) loss of $0.01 per share, in line with the Multex consensus of ($0.01); revenues rose 22.5% year/year to $157.4 mln vs the $157.3 mln consensus.
4:30PM Apple Computer beats by 2 cents, issues vague guidance (AAPL) 13.24 -0.15: Reports Q2 (Mar) earnings of $0.04 per share, $0.02 better than the Multex consensus of $0.02; revenues fell 1.3% year/year to $1.48 bln vs the $1.46 bln consensus. For Q3, co expects rev to be "relatively flat" with the March qtr and expects a "slight profit" for the qtr (consensus is for $1.49 bln in revs and $0.05 in EPS).
4:29PM Silicon Image in line with consensus (SIMG) 4.47 +0.05: Reports Q1 (Mar) earnings of $0.01 per share, in line with the Multex consensus of $0.01; revenues rose 44.4% year/year to $24.7 mln vs the $24.4 mln consensus. Company gave limited guidance for FY03 IP licensing revenues to be 10%-15% of top line with no further details on sales and earnings forecasts.
4:18PM SanDisk beats by $0.15 (SNDK) 17.80 +0.10: Reports Q1 (Mar) earnings of $0.33 per share, $0.15 better than the Multex consensus of $0.18; revenues rose 88.4% year/year to $174.5 mln vs the $150.0 mln consensus.
4:17PM Lam Research beats by $0.03 (LRCX) 11.69: Reports Q3 (Mar) earnings of $0.03 per share, $0.03 better than the Multex consensus of $0.00; revenues rose 14.0% year/year to $187.1 mln vs. the $180.4 mln consensus.
4:11PM Virage Logic beats by a penny. (VIRL) 4.43: Reports Q2 (Mar) loss of $0.05 per share, $0.01 better than the Multex consensus of ($0.06); revenues fell to $9.6 mln vs the $9.5 mln consensus.
4:08PM Broadcom beats by $0.04 (BRCM) 13.98 +0.15: Reports Q1 (Mar) earnings of $0.06 per share, ex items, $0.04 better than the Multex consensus of $0.02; revenues rose 37.1% year/year to $327.5 mln vs the $308.2 mln consensus.
4:07PM BRCM headline $0.06, consensus $0.02 : Not sure if number is clean, but revs look above.
3:24PM Broadcom Earnings Preview (BRCM) 13.99 +0.16: Broadcom reports its Q1 after the close today with Multex consensus earnings estimates of $0.02 per share with revenues of $308.2 mln. In general, analysts expect the co to perform in line with expectations on both the top and bottom line. A Pacific Growth Equities analyst believes the co should guide "for low-to-mid single digit growth for the June quarter" given its product exposure to emerging product areas in the wireless local area and network and digital subscriber line markets. However, analysts are also looking for the co to provide some insights on the recent Serverworks departures and potential competitive pressures in key product segments such as gigabit ethernet. In the co's last three earnings announcements, the stock has had significant reactions of -14.2%, -14.6%, and 4.5% for its Q4 (beat by $0.01, Q3 (in-line) and Q2 (beat by $0.01) results, respectively.
4:06PM Cree reports in line (CREE) 23.12: Reports Q3 (Mar) earnings of $0.14 per share, in line with the Multex consensus of $0.14; revenues rose 80.5% year/year to $60.2 mln vs the $60.5 mln consensus.
4:06PM Advanced Micro tops ests (AMD) 7.85 +0.25: Reports Q1 (Mar) loss of $0.42 per share, $0.06 better than the Multex consensus of ($0.48); revenues fell 20.8% year/year to $714.6 mln vs the $680.1 mln consensus.
2:51PM AMD Earnings Preview (AMD) 7.83 +0.23: Advanced Micro Devices reports its Q1 after the close today with Multex consensus earnings estimates of ($0.48) with revenues of $680.1 mln. The general consensus by most analyst's appears to be the co performing in line with expectations. In terms of forecasts, a JMP analyst believes the co "will likely have a more positive outlook for the June quarter due to a richer PC and server processor mix coupled with market share gains in flash memory." Given Intel's recent earnings announcement illustrating flash sales below expectations, a Pacific American Securities analyst is looking for AMD to exhibit some upside and potentially gaining market share in this particular product segment. In the co's last three earnings announcements, the stock has had mixed reactions of -16.3%, 24.1%, and -6.5% for its Q4 (missed by $0.25), Q3 (missed by $0.07), and Q2 (missed by $0.09) results, respectively.
4:04PM Sun Microsystems reports in line (SUNW) 3.32 -0.03: Reports Q3 (Mar) net of breakeven, in line with the Multex consensus of $0.00; revenues fell 10.2% year/year to $2.79 bln vs the $2.94 bln consensus.
3:03PM Rambus bid to dismiss FTC case rejected by federal judge (RMBS) 14.52 -0.28: Reuters reports that a federal judge rejected a motion by Rambus to dismiss the government's antitrust case against it, saying there was enough evidence to warrant going ahead with a trial later this month.
2:19PM Ciena cut to Underweight from EqualWeight at Morgan Stanley (CIEN) 4.32 +0.06: Firm says that recent data pts indicate equipment pricing pressure, a weakening spending environment and increased competition. Moreover, firm's proprietary capex model points to further spending deteriorating. Firm's discounted cash flow fair value for CIEN is $2.52.
10:34AM Sector Watch: Semiconductor : Top performing group in early trade continues to work higher. Pacing the way are: TXN +10.3%, ALTR +7.5%, INTC +6.5%, LLTC +5.8%, XLNX +6.4%, AMD +5.9%. Only component of the SOX index (324 +5.3%) in the red is MOT (-1.9%). Initial resistance is near 325.75 followed quickly by the April high/congestion at 327/328 and the 331/332 area. Intraday support is at 320. Resistance for the Semi HOLDRs is at 26.15 and 26.30 (200 day ema).
10:21AM Intel flirting with resistance (INTC) 18.15 +1.02: -- Update -- -- Technical -- Stock has established a minor new session high in recent action and has probed resistance in the 18.23/18.27 area. This marks both straight line resistance and a trendline off the Dec/March highs. The bottom of the March 24 gap follows shortly thereafter at 18.32 (top at 18.50).
9:30AM Pixelworks upped to EqualWeight from UnderWeight at Pacific Growth -- valuation (PXLW) 6.00 +0.18: Firm also raising its FY04 est to $0.19 from $0.17 to reflect a change in revenue mix.
10:52AM Technical Levels: When we reviewed the Nasdaq yesterday, we were relatively bullish on the near to intermediate-term outlook. Recall that on Monday, both the S&P 500 and the Dow Industrials had edged above their 200-day simple moving averages.
While the move was somewhat unusual -- occurring on volume that rivaled the year's lowest levels -- there was another dynamic that caught our attention. Namely, the averages were notably extended on an intraday basis just to reach those 200-day sma's -- particularly in the case of the Dow. Without belaboring the matter, the point was that despite an absence of conviction, the path of least resistance remained to the upside.
This first chart is a fifteen-minute chart of the Nasdaq in which each bar on the chart represents the opening and closing levels for each fifteen-minute time frame. Many of the pivot points we've been looking towards are drawn in, and this chart illustrates when and where several notable levels have been observed. In the specific case of yesterday, we were looking for "initial resistance at 1390 to 1392" which matched well with the index' closing level at 1391.
To read the remainder of this review -- which addresses the Nasdaq Volatility Index -- please click here to visit Briefing.com's Stock Brief page. -- Mike Ashbaugh, Briefing.com
10:35AM Ahead of the Curve: Intel and Microsoft One of the themes we have been stressing for two years is the maturation of the enterprise Information Technology (IT) market. Intel (INTC) and Microsoft (MSFT) are great proxies for the overall IT industry. Both reported earnings yesterday after the close, and both had "good" reports, from the viewpoint of exceeding estimates.
"Beating" estimates is only a short-term phenomenon, however, and practically irrelevant for long term investors. Microsoft and Intel have both beaten estimates consistently in recent years. Intel is 20 for 25 quarters; Microsoft is 24 for 25 quarters. But both stocks are down more than 50% for the same time period. So who cares about beating estimates? There are bigger forces at work.
We have analyzed Microsoft's and Intel's earnings from the larger trend viewpoint (consistent with the Ahead of the Curve approach) of looking at the thesis of the maturation of the technology market. From this viewpoint, using the criteria we established in the April 25 Ahead of the Curve column (on the Stock Brief page), Intel definitely confirms a maturation thesis. Microsoft, which has some encouraging aspects to its quarterly report, basically negated those positive indications with its guidance for Q4, and therefore also confirms the thesis, although less strongly than the Intel report.
The implications of the maturation thesis are dramatic for technology stock investors. Most technology stocks are still priced as growth stocks, even though recent history shows no real evidence of growth. The valuations are supported by the hopeful tech investors who believe that technology will rebound, since it is such an important component of the economy. If we are right, and the technology markets are maturing, the valuations on tech stocks will be readjusted over the next three years to those of mature companies. The companies will do well, but the stock prices will at best maintain current levels, and at worst, see their values declines sharply - at which point they will be acquired by the larger players. This is a common pattern of a growth market that matures.
For a full analysis of these ideas, and an analysis of how Microsoft and Intel serve as data points in "testing" the maturation thesis, see the Ahead of the Curve column of today, on the Briefing.com Stock Brief page. The article is entitled: Ahead of the Curve: INTC MSFT: Testing the Maturation Thesis. - Robert V. Green, Briefing.com
There is more significance in how the market reacted to the Intel (INTC 17.13) and Microsoft (MSFT 24.61) news than in the actual reports. These two companies are the foundations of the technology industry, the bellwethers and the source of greatest profit. And these reports reflect a maturing industry. Intel's revenues fell 0.4% from the same quarter last year, and Microsoft's rose just 8.1%. Intel shows no sign of getting out of its slump. Its revenue in the first quarter of $6.75 billion was 4.9% below where it was four years ago. Per share profits are less than half the level of 4 years ago. Yet, the market loved both reports. INTC and MSFT are bid higher, as are the S&P and Nasdaq stock futures.
Don't get us wrong, we are very pleased to see the positive reaction, even if we think some of the initial reaction to selected reports might be overdone. Recently, the market has been willing to accept mediocre reports as good news, because there is an underlying assumption that conditions will improve in the months ahead. It has even fought off poor economic data, overcoming initial negative reactions within hours. This is a very good sign for the near-term outlook for stocks. It is a classic earnings season rally mentality.
10:12AM Photon Dynamics (PHTN) 17.90 -0.60: Adams Harkness downgrades Buy to MKT PERFORM. Following last night's EPS report, firm believes that intensifying price competition will limit PHTN's gross margin on future sales, which should materially impact CY04 EPS.
10:02AM Intel (INTC) 18.09 +0.96: First Albany downgrades Strong Buy to BUY. Firm believes that economic slowdown in Asia will impact co's ability to achieve Q2 guidance.
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