From Briefing.com: 6:09PM Weekly Wrap: It seems appropriate that in such an emotionally charged week, the market was relatively subdued. Stocks rallied modestly ahead of the one-year anninversary of 9/11, as short-sellers, mindful of how the market surged higher after the July 4th holiday passed without any acts of terrorism, covered positions. The gains were unwound after 9/11, however, as more traditional concerns such as sluggish economic/earnings growth returned to center stage. Heightened talk of war between the US and Iraq also weighed heavily on investor confidence.
Week's biggest winners included Wireless, Broadcasting, Advertising, Steel and Telecom stocks... Losers were led by the S&L, Electric Utility, Bank, Alcoholic Beverage, Furnishing and Tobacco groups.
Net result is that market's near-term direction continues to hang in the balance. Technicals have deteriorated over the past couple of weeks, but unlike recent pullbacks, the declines have been relatively slow and spotty. But when you consider the lousy seasonals, advent of preannouncement season, inconsistent economic data and increased threat of war, the indices have held up remarkably well.
With the recent data raising serious questions about the validity of the double-dip scenario, if the indices can continue to tread water for another couple of weeks (staying afloat through warnings season), Briefing.com maintains that the market will be in position to renew its recovery rally.
Looking ahead to next week, Briefing.com expects traders to take directional clues from the Housing Starts/Building Permits data, as well as from Bear Stearns Healthcare Conference and the Best Nuy (BBY), Oracle (ORCL), KB Home (KBH), Bear Stearns (BSC), FedEx (FDX) and Morgan Stanley (MWD) earnings reports.
4:10PM : The major averages finished Friday mixed -- the Nasdaq closed modestly higher, while the Dow posted a modest one-day loss. For the week, the Nasdaq lost roughly four points, while the Dow dropped about 115 points. Friday's trade activity followed on a batch of economic reports which carried mixed implications...
Specifically, the preliminary University of Michigan sentiment reading for September slipped to 86.2 from 87.6 in August. The consensus estimate called for a reading of 88.0. As we have noted before, this survey is based on about 250 phone calls, so its significance is questionable -- this point is supported by the fact that recent weakness in sentiment has been followed by strength in spending, as suggested by this morning's August Retail Sales report...
Nonetheless, as far as the detail in the Michigan Sentiment data, the September decline in consumer sentiment was larger than August as a -2.6% drop in the present situation component added to an -0.7% decline in expectations. The softening in consumer sentiment runs in contrast to the relatively strong pace of consumer spending but is consistent with fears surrounding war talk, weak equity markets and the stalled labor market improvement. The survey doesn't provide a clear read on spending as strong disposable income growth and low interest rates have provided support... Separately, August Retail Sales rose 0.8% and 0.4% excluding autos - these increases were both three tenths stronger than consensus. The latter figure was particularly encouraging as it was feared that strength in sales was confined to the auto component. Instead, broad-based consumption gains point to a third quarter GDP increase in excess of 3%...
Looking towards next week, catalysts are somewhat limited on both the corporate earnings and economic calendar. On the earnings front, look for software vendor Oracle (ORCL) to reports its results on Tuesday. On the economic calendar, both Capacity Utilization and Industrial Production are also set for release Tuesday. Those two are followed by Housing Starts data due out Thursday. For a complete list of what to expect on the economic front, please visit Briefing.com's Economic Calendar. DJTA -0.3%, DJUA +1.6%, Nasdaq 100 -1.0%, Russell 2000 +1.0%, SOX -1.1%, S&P Midcap 400 +0.8%, XOI +0.3%, NYSE Adv/Dec 1776/1382, Nasdaq Adv/Dec 1795/1461
3:58PM Micron (MU) 16.61 -1.07: MU drops 6% in semi sell-off and est cuts by UBS Warburg; firm lowers sales to $659 mln from $667 mln on higher bit shipments (261 mln vs 238 mln units) offset by slightly lower blended ASP ($2.39 vs $2.65) assumptions but keeps EPS at a loss of $0.15. Firm remains cautious on commodity DRAM producers, seeing few catalysts on the horizon and increasing evidence to suggest that DRAM per PC is slowing and end-mkt demand in H2 may disappoint ... UBS advises investors to reduce holdings on any strength in DRAM spot prices in Q3.
3:57PM Adobe Systems (ADBE) 20.50 +2.05: Proving analysts' expectations of in-line results near-sighted, ADBE blew out Q303 results, beating consensus by $0.03 and leaving room for upward revisions with Q4 guidance of $0.21-0.25 (vs. Multex consensus of $0.22). Aside from upgrade by USB Piper Jaffray (see In-Play for details), analysts' reactions have been largely reserved despite earnings surprise. Goldman Sachs's checks point to continued international deterioration; firm does not anticipate meaningful catalyst for revs growth (outside of modest Q4 seasonality) until next major release of Acrobat in mid-Y03. Although considering Q3 results "a minor victory", Thomas Weisel refrains from recommending aggressive purchase of attractively-valued stock until better visibility into demand improvement is established. Soundview Technology is impressed by ADBE's product output, but shies away from recommending shares due to demand and valuation concerns. Despite cautious commentary shares have gained over 11% in today's session.
2:45PM Motorola (MOT) 11.54 -0.15: Despite another bullish analyst opinion, shares can't seem to get a lift and falter 1.5%; Soundview believes investor concerns on MOT's handset positioning, the effects of a slowdown on co's nascent semi recovery, and domestic wireless weakness impeding handset share, are overblown and recommends buying shares are current levels. Soundview notes MOT's new T720 and C330 phones are now shipping to operators and mgmt yesterday reiterated guidance for its semi unit. Firm continues to believe co is well positioned to miss any domestic wireless weakness as top U.S. customers NXTL and VZ appear to be on track in Q3.
12:47PM ESS Tech (ESST) 7.99 -3.24: Shares are down 28.9% following last night's downside preannouncement for Q302 EPS of $0.13-0.21 (vs. Multex Est of $0.37) and a storm of follow-up downgrades. Soundview Technology downgrades to NEUTRAL from Outperform due to significant shortfall resulting from share loss and reduced customer confidence; sees few catalysts to move stock over next several qrtrs, but believes it's too early to write-off seasonal demand for specific product categories. Needham & Co downgrades to BUY from Strong Buy based on warning; believes ESST is likely to experience recovery next yr as it gains back share and enhances average selling prices with Vibratto II offering. For additional downgrades on ESST, please see Upgrades/Downgrades page.
11:59AM Advanced Micro (AMD) 7.24 -0.40: Last night's delay of Hammer chip launch to Q203 from Q103 (see In-Play for details) is pressuring stock, currently trading down 5.2%. Prudential's checks indicate, Hammer may start ramping at end of Y02, which had been AMD's internal goal; even if internal goals are not reached, firm expects chip to be on track for early Y03 ramp, with availability in March/April; reiterates Buy rating. UBS Warburg is not as forgiving; reiterates Reduce rating given expectation of losses through Y03, co's eroding market share to Intel (INTC 16.01 +0.31), heightened risk to medium term ASP, and potential risk in loss of faith by AMD's customers. INTC has advanced 2% on announcement of Hammer's delayed launch.
11:37AM Skyworks (SWKS) 5.12 +0.21: Stock is getting a lift (+4.3%) from a Goldman Sachs initiation with Market Outperform. For investors with 12-month horizon, sees shares very attractive given strong competitive position and relative valuation. Firm believes SWKS is well-positioned to outperform its peers; however, financing concerns are likely to keep shares relatively rangebound in near-term with an upward bias. Risks to $7 price target include merger execution, potential dilution from financing requirements, and product cycle orientation of the handset market.
9:26AM Zoran should be bought on ESST weakness - Pac Growth (ZRAN) 13.24: -- Update -- In contrast to Thomas Weisel's downgrade (8:42), Pacific Growth believes the problems at ESST are co-specific and bear no relevance on ZRAN's ability to meet its quarterly forecast; says ZRAN was already undervalued, and any weakness attributable to the ESST miss should be aggressively bought into; reiterates Overweight rating.
9:20AM Genesis Microchip upgraded at Pac Growth (GNSS) 8.57: -- Update -- Pacific Growth upgrades to Equal-Weight from Underweight given the improved near-term outlook (co raised guidance, see 8:50 comment) and the positioning for sustained growth.
8:50AM Genesis Microchip: CIBC raises est after call, but remains cautious (GNSS) 8.57: CIBC World Mkts raises Q2 est to $0.05 from $0.03 after co's management increased its Q2 sales outlook last night on conference call. (Co boosted rev outlook to $45-$46 mln from $42-$43 mln). Despite the increase in FPD shipments experienced by company, CIBC remains cautious due to uncertain sell-through. Believes that excess glass inventories fueled recent controller demand, as manufacturers build FPD monitors in anticipation of holiday demand.
8:42AM Zoran downgraded at Thomas Weisel (ZRAN) 13.24: -- Update -- Thomas Weisel downgrades to MKT PERFORM from Attractive based on weak DVD data; cuts FY02 est to $0.54 from $0.64 and FY03 to $0.60 from $0.93.
8:41AM RF Micro Device started with Sell at Deutsche (RFMD) 6.95: Deutsche initiates coverage with a SELL rating and 12-month target of $4.00 (28x FY04 est). Firm says that its rating does not indicate a negative opinion of the company, which it considers to be the dominant supplier in its space. Instead, rating merely reflects firm's 12-month price target and DB's new rating structure.
8:13AM Adobe Systems upgraded at Piper Jaffray (ADBE) 18.45: USB Piper Jaffray upgrades to OUTPERFORM from Mkt Perform in anticipation of the upcoming Acrobat 6.0 product cycle; release should represent a psychological catalyst to the story and provide an opportunity for a fundamental rev catalyst during the upgrade qtrs; raises Q4 rev/EPS ests to $285 mln/$0.23 from $275 mln/$0.22 (mid-range of last night's guidance).
7:37AM Lucent slashes guidance, again (LU) 1.65: Due to continuing market softness and ongoing uncertainty in customer spending levels, co expects to post a sequential revenue decline of 20-25% from $2.95 bln. The forecast implies Q4 revs of $2.21-$2.36 bln (Multex consensus $2.86 bln). Puts Q4 pro forma loss at $0.45 due to weak revs, charges associated with a significant customer financing default this month, and the inability to recognize tax benefits on losses. Current Multex consensus is -$0.16.
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