RECAP & STOCKS TO WATCH FOR MONDAY, 3-12-01
Another warning by tech bellwether Intel (INTC) and a stronger than expected employment report sent all the major indexes plummeting on Friday. The Nasdaq Composite finished with a 5.3% loss and a new low for the year based on weakness in virtually all sectors, with the chip and hardware sectors being hardest hit.
Not helping matters was the weekly report by First Call/Thomson Financial, noting that negative pre-announcements are running 57% ahead of the record-setting pace of Q4 of 2000. Also, warnings from the tech sector are 112% ahead of the previous quarter.
In the past three weeks alone, expectations for tech sector earnings dropped from a 14% decline to a 29% decline for Q1 of 2001, from a 14% decline to a 27% decline for Q2, and from a 2% decline to a 14% decline for Q3.
On Friday, the Nasdaq Composite dumped 115 points to close at 2,052. Volume came in at 2.00 billion shares, with decliners beating advancers by 27 to 10. Blue chips followed the techs as the Dow skidded 213 points to finish at 10,644. Volume on the Big Board was 1.08 billion shares with decliners beating advancers by 20 to 11. For the week, the Dow gained 178 points, while the Nasdaq Composite lost 64 points.
From a technical standpoint, the Nasdaq Composite has put in another lower high and lower low, continuing the long-term downtrend. Support now stands at 2,000 and 1,800. The Dow settled in a congested support area, with next support at 10,300. The Semiconductor Index (SOX) has pulled back off of resistance at 650 and is resting on support in the 600 area.
Looking ahead this week, economic reports will likely be the main focus of traders’ attention. Friday's employment report was not as bad as many economists had predicted, which now has many worried that the Fed will be less aggressive at the FOMC meeting on March 20. At this point, a 50 basis point cut is still the likely outcome, given the fact that the equities markets just don’t look very good right now. The biggest market moving economic reports for the week will likely be the Retail Sales report on Tuesday, and the Producer Price Index on Friday. Also on the agenda is Oracle's earnings report, which will likely be very critical for the Nasdaq. Oracle has already pre-announced, but it’s very important that they at least meet their reduced estimates, especially with the Nasdaq now down 60% from its high, and many traders and investors looking to the tech giant for some guidance. Also, keep in mind that several of the big technology companies, such as Cisco (CSCO), JDS Uniphase (JDSU), Juniper Networks (JNPR), Nokia (NOK), Motorola (MOT), and Qualcomm (QCOM) will be speaking at conferences during the week, and with many of these companies looking so beaten down near term, we might (and I stress might) see positive news from these companies produce short-term trading bounces in the stocks. Also, unless companies such as CSCO, ORCL, INTC are simply going to go out of business, we have to ask ourselves how much worse the news can get at least in the near-term.
Cisco Systems (CSCO): Company formally announced job cuts that had been widely reported the last few days. The reduction in workforce will include 2,500-3,000 temporary and contract workers as well as 3,000-5,000 regular employees through voluntary attrition, involuntary attrition and the consolidation of some positions; The company anticipates a one-time charge of $300-400 mln and expects the slowdown in capital spending to extend beyond 2 quarters. |
