MISC..NAZ--Nasdaq technicals positive, depend on sector gains
Wednesday July 26, 5:00 pm Eastern Time
Nasdaq technicals positive, depend on sector gains
By Julie MacIntosh
CHICAGO, July 26 (Reuters) - The floundering Nasdaq Composite Index (^IXIC - news) may be mired in a lose-lose situation this earnings season, and the U.S. Federal Reserve's recent inflation-fighting stance is largely to blame, market analysts said.
The current corporate earnings reporting season has posed a dilemma for tech-sector companies, they said.
``Stocks that report bad earnings in July are, of course, destroyed,'' said Terence Gabriel, equity analyst at IDEAglobal.com. ``But if you report in-line earnings, you're probably in trouble, and even if you blow earnings away, the problem is...the next report or the report after probably can't be as good.''
Recent second-quarter corporate earnings reports indicate that a series of six interest rate hikes from the Fed dating back to June 1999 has not yet significantly stunted tech-sector growth.
But forecasts from companies such as Xerox Corp. (NYSE:XRX - news) that include earnings warnings for the second half of 2000 have spurred market participants to focus on the possible future effects of the Fed's rate increases instead of on the market's present condition.
The Nasdaq's underlying technical picture remains positive, analysts said, barring any breakdowns in the biotech and semiconductor sectors.
Companies in the Nasdaq Composite are relatively helpless against the effects of the Fed's credit tightening, but the index can advance if some leaders in the faltering semiconductor and biotech sectors emerge.
``We don't need to see a massive turn in these (semiconductor and biotech) stocks for us to remain bullish -- we merely need them to hold,'' said Todd Gold, vice president of technical research at Gruntal & Co.
``Technically, I think we really haven't broken down yet,'' Gold said. ``We're still bullish at this time, although the breakout that we saw the other week has failed. There's no way to really deny that the lack of leadership is certainly concerning us.''
The Nasdaq Composite rallied to a high of 4,289.06 on July 17, its highest level since April 10. But after the index made this brief top, semiconductor-sector losses send it sinking toward support near 3,800.00, analysts said. The index ended Wednesday at 3,987.92, down 1 percent on the day.
If the semiconductor and biotech indexes that led the Nasdaq's initial gains add to recent heavy losses, the entire Nasdaq Composite could suffer considerably, Gold said.
But the closely watched semiconductor index (^SOXX - news), which ended Wednesday at 1,034.20, down 6.4 percent on the day, has taken a beating. The index double-topped on June 20-22 and July 17-18 but pared gains and is now approaching a crucial level of support from 960 to 1,000, technicians said.
``If we hold that level, I think we could bounce back to 1,200, and that would be what we're looking for,'' Gold said.
Without assistance from its semiconductor shares, the Nasdaq Composite's outlook could turn bearish. But Gold said the more likely scenario would be for the index to hold near 3,750.00 to 3,800.00.
``We still maintain our 4,475.00 objective for the Composite, but I don't think that's going to happen this week,'' he said.
Gold remained hopeful that the Nasdaq Composite's slightly bullish trend signals would nullify the effects of corporate earnings warnings and Fed policy decisions.
``I think that the lower end of the trading range that we were in from the beginning of June, right around the 3,750.00 to 3,800.00 area, should limit any downside that we see here in the near term,'' Gold said.
Recent anaemic Nasdaq trading volume, characterised by a preponderance of sellers over buyers, has caused the index to fluctuate violently, analysts said.
``In that kind of thin environment, swings can just be enormous, and right now it doesn't look like that's going to change,'' Gabriel said. ``The path of least resistance is down.''
Key employment cost index data, due out Thursday, and next month's consumer price index and producer price index figures will prove crucial in determining the market's fate, analysts said.
A benign ECI figure could help assure market participants that the Fed will keep interest rates steady and possibly bolster the effects of technicals and strong earnings reports.
But if ECI comes in stronger than expected, concerns about a slowdown in the second half of the year will be heightened.
``If it's above-expected ECI, then I think we threaten to go back toward the April-May lows,'' Gabriel said. If it's benign, then we can maybe begin...a move that can send the average up toward the March highs." |
