From Briefing.com: Updated: 27-Jan-03 - General Commentary - While the blue chip indices slipped into negative territory for the year, the tech heavy Nasdaq clung to a slim gain after shedding consider ground amid disappointment over the near-term earnings outlook. Not a lot to hang your hat on if you're a bull, but it will have to do.
Good news is that sector is deeply oversold short-term and ripe for a technical bounce. As Briefing.com indicated the other day that bounce should carry index back to the 1400-1410 area.
Sector should also get a lift on the earnings front as most of the semiconductor and key telecom companies have already reported results - and that's where visibility was the most clouded. This week brings a slew of second and third tier software companies. Though we aren't expecting great news, at least the tone should be improved.
Working against the sector will be the ongoing threat of war, the deteriorating technical tone, increasingly pessimistic investor sentiment, a declining dollar and still high valuations. While these factors should make it difficult for the tech sector to gain much ground in the days ahead, they shouldn't completely offset the oversold short-term technical posture and the probability of better earnings news.
Consequently, Briefing.com expects sector to stop the bleeding - at least for a few days. Length and scope of rebound will hinge mainly on the geopolitical situation and the fortunes of the dollar.
Robert Walberg
6:31PM Weekly Wrap :
The ongoing threat of war in Iraq was definitely a contributing factor behind the market's broad retreat this week, but it wasn't the only reason, nor the primary reason, stocks gave ground. Briefing.com maintains that the pullback was driven mainly by the fact that earnings guidance for the first half of 2003 proved disappointing to investors that had bid the market up sharply in advance of the reporting period. Does the war threat contribute to corporate uncertainty? Sure. But a lack of demand and pricing power across industries is what's really troubling.
The theme we're picking up from the Q4 reporting period is that companies will continue to work at improving operating efficiencies to defend margins and the bottom-line. Put bluntly, more job and spending cuts are on the way. Not the ingredients for a strong economic/earnings recovery.
High energy prices and dollar weakness also contributed to the sour tone. Growth and economically sensitive sectors were among the week's big losers, with Telecom, Trucking, Airlines, Steel and Factory Equipment stocks pacing the retreat. Not surprisingly, winners were the more defensive groups such as Metals, Healthcare and Consumer Services.
With the indices having relinquished most or all of their strong early month gains, sentiment has quickly turned from optimistic to pessimistic. Consequently, look for indices to begin next week on the defensive. Will take more consistently good news from the earnings front to restore confidence in the market. Chemical, Drug, Rail, Oil/Oil Services and Consumer Staple stocks lead the list of firms due to report in the week ahead (see Earnings Calendar for specifics).
Traders will also have to wade through a slew of economic data - Existing/New Home Sales, Consumer Confidence, GDP-Adv, Durable Goods and Chicago PMI - as well as an FOMC meeting and the State of the Union address. Of course, continuing to hang over the market will be the increasingly real threat of war with Iraq.
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 8586.74 8131.01 -455.73 -5.3 % -2.5 %
Nasdaq 1376.19 1342.14 -34.05 -2.5 % 0.5 %
S&P 500 901.78 861.40 -40.38 -4.5 % -2.0 %
Russell 2000 388.10 375.06 -13.04 -3.4 % -2.1 %
1:36PM Power Integrations -- Daily Breakout (POWI) 20.95 +2.58: Shares of Nasdaq-traded Power Integrations are posting a 14.1% gain today. The $605 mln market-cap company designs and markets proprietary, high-voltage, analog integrated circuits (ICs) for use primarily in alternating current to direct current (AC to DC) power conversion. Today the shares are breaking out on a well received Q4 report issued last night. Going forward, POWI is projected to earn $0.29 this yr (p/e 72.4). EPS is projected next yr at $0.49 (p/e 42.0).
2:19PM Intl Rectifier (IRF) 19.91 -0.59: Wedbush Morgan upgrades LT Attractive to BUY. Target $28. Based on improved earnings outlook.
2:13PM Power Integrations (POWI) 20.84 +2.47: Pacific Growth Equities upgrades Equal Weight to OVER WEIGHT. Believes market share gains, solid execution, strong product momentum, high barriers to entry, diversification of end markets and customers, and excellent balance sheet will allow shares to outperform peers.
2:11PM Brooks-PRI Automation (BRKS) 11.39 +0.04: Adams Harkness upgrades Mkt Perform to BUY. Target $16. Believe risk/reward has tipped toward reward side at current valuation.
2:03PM Cabot Micro (CCMP) 46.57 +0.42: Wells Fargo Sec upgrades Hold to BUY. Target $75. Says Q103 results and Q2 guidance have allayed firm's short-term concerns.
1:56PM KLA-Tencor (KLAC) 34.83 -1.58: RBC Capital Mkts downgrades Outperform to SECTOR PERFORM. Target $40. To reflect expectation that return on shares will likely be in-line with sector average over next 12 months.
10:28AM Sector Watch: Semiconductor : The breakdown today recently accelerated with the index (SOX 284 -4.6%) pressured by: BRCM -13.9%, NVLS -5.3%, AMAT -4.7%, KLAC -5.2%, LSCC -5.6% and LLTC -4%. The index has taken out its Dec low with the Nov low providing next support at 281.97. The 62% retrace of the Oct/Dec rally comes in at 279.81. Intraday resistances are at 285 and 288.
9:20AM RF Micro Device downgraded at RBC (RFMD) 6.21: RBC Capital downgrades to Outperform from Top Pick and cuts price target to $14 from $18 due to the current volatility in the markets and lower visibility in the channel.
8:53AM KLA-Tencor upgraded at Fulcrum (KLAC) 36.41: -- Update -- Fulcrum upgrades to Buy from Neutral; after the disappointing orders and shipments guidance for the March 2003 qtr, firm believes that the forecasted "bad news" would be in the stock; expects some selling pressure given the disappointing orders guidance, and estimates that the potential downside is 5-10%; firm would be aggressive buyers of KLAC at $35, with a price target of $45.
8:07AM Cabot Micro upgraded at Wells Fargo (CCMP) 47.46: Wells Fargo upgrades to Buy from Hold, saying Dec qtr results and March guidance have allayed their short-term concerns; says stock is "by far" their favorite long idea in the semi equipment/materials space. Target is $75.
7:46AM Broadcom cut to Sell at Merrill Lynch (BRCM) 17.61: Cites the high P/E multiple, and departure of the CEO; firm believes will undergo a cultural change, if not a bit of a leadership vacuum.
7:31AM KLA-Tencor cut to Hold at Prudential on valuation; target $37 (KLAC) 36.41: Prudential downgrades to Hold from Buy given concerns regarding the steep declines in DDR DRAM pricing, flat March quarter order guidance, and geopolitical uncertainty believes the near-term catalysts for stock appreciation could be limited.
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