From Briefing.com: Updated: 28-Jan-03 - General Commentary - Didn't take long for Nasdaq to join the rest of the market averages in shedding all of its early year gains. Monday's broadbased 1.3% decline left the index in negative territory for the month/year. Speed and scope of decline off the mid-month highs is disconcerting, as is fact that losses are occurring across all industries. Yesterday's biggest losers were the Networking and Wireless groups - the very industries that paced the sector's recent advance.
Increased threat of war with Iraq seems to be souring investor sentiment beyond even the most pessimistic of expectations. Might take actual start of war before investors will be able to quantify risk sufficiently and start feeling comfortable on the long-side of the market. In the meantime, indices continue to suffer considerable technical damage. Not only have the late December lows generally given way, but indices now trading well below 50-day moving averages.
If sector/market is to rebound, bounce needs to come soon or technical damage will get so severe as to encourage additional (technical) selling. As we've noted over the past couple of sessions, indices are now deeply oversold from a short-term perspective so a recovery try is definitely likely over the next day or two. However, to change current bearish tone, Nasdaq needs to get back above 1410 area - and that's apt to be difficult as long as war clouds continue to darken.
With most of the big name tech firms already having reported earnings (CSCO and DELL notable exceptions) fewer chances for a broad based earnings related pop. On the flip side, most of the disappointing earnings news is out so at least that front shouldn't offer much more risk to market (near-term). Basically, earnings visibility and valuations still argue against any meaningful upside. Consequently, any bounce that we do get over the next few sessions should be seen as corrective in nature until proven otherwise.
Robert Walberg
4:19PM Vitesse Semi matches estimates (VTSS) 2.07 -0.14: Reports Q1 (Dec) loss of $0.06 per share, in line with the Multex consensus of ($0.06); revenues fell 2.3% year/year to $38.2 mln vs the $38.2 mln consensus.
4:08PM Powerwave matches estimates (PWAV) 4.33 -0.32: Reports Q4 (Dec) loss of $0.05 per share, in line with the Multex consensus of ($0.05); revenues fell 9.8% year/year to $76.1 mln vs the $76.7 mln consensus.
4:07PM MEMC Elec reports Q4 results (WFR) 7.90: Reports Q4 net of $0.17 a share. The Multex consensus for the qtr was $0.08 (2 analysts surveyed). Revs slipped 2.2% to $186 mln (consensus $180 mln). WFR's effective tax rate for the qtr was 8%; going forward, co anticipates a rate of approx. 30%.
Close Dow -141.45 at 7989.56, S&P -13.92 at 847.48, Nasdaq -16.86 at 1325.28: Chief UN Inspector Hans Blix's report to the UN Security Council did little to bridge the growing gap between the U.S. and Europe's approach to the standoff in Iraq, and as a result, investors voiced their concerns over the growing likelihood of a U.S.-led attack with a seventh day of losses for the major indices in the past eight sessions... Consequently, the Dow dipped below 8,000 for the first time since October and the Nasdaq surrendered its gains since the first of the year at the close...
War rhetoric over the weekend, in which Secretary of State Colin Powell indicated that the U.S. is prepared to go to war with Iraq even without the support of Europe, stirred up the international community and prompted Spain, Germany, France, and the United Kingdom to come out in support of more time for inspections if deemed necessary by Blix... In fact, Blix did not specifically ask for additional time for inspections although his co-presenter, Mohamed ElBaradei, the head of the Intl Atomic Energy Agency, suggested the inspection process should "run its natural course" and added "we should be able [to do this] in the next few months"....
Blix himself conceded that "Iraq appears not to have come to a genuine acceptance, not even today, of the disarmament that was demanded of it [by UN Resolution 1441]" although, at the same time, he failed to offer new evidence of weapons of mass destruction... Given the lack of clarity in Blix's report, the U.S. and Europe essentially maintained their disparate stances, which helped the U.S. equity market retain its negative bias as fears surrounding a US-led attack heightened...
The Bush administration, in its response, dismissed Iraqi cooperation as inadequate, and U.S. Ambassador John Negroponte said he heard nothing that gave "any hope that Iraq will disarm" voluntarily... Furthermore, when asked whether the threat from Saddam Hussein was imminent, White House spokesman Ari Fleischer said, "From the president's point of view, it remains a very grave threat."... With such intensified war talk, the market remained on the defensive for most of the session, and only pushed above the unchanged line at 10:00 ET, in response to the release of one of strongest Existing Home Sales reports on record...
However, the encouraging data point failed to sustain the recovery effort as evidence as to the still robust housing market is nothing new to the market, and the proliferation of headlines regarding impending war situation with Iraq, effectively held buyers hostage for the much of session... Drug, retail, biotech, and banking were among the influential sectors pacing the broad-based selling drive... Tomorrow, the market will continue to take its cue from developments on the geopolitical front, which are not expected to subside given President Bush's State of the Union address tomorrow night...
Additionally, any outgrowths from the start of the FOMC's two-day, semi-annual meeting, will also play into investors' decisions tomorrow... NYSE Adv/Dec 732/2375, Nasdaq Adv/Dec 1020/2320
11:43AM Asyst (ASYT) 8.21 +0.05: CE Unterberg Towbin upgrades LT Mkt Perforn to LT BUY. Target $15. Reflecting improved operational execution and longer term market opportunity.
10:50AM Brooks-PRI Automation upped to Long-term Buy at Unterberg (BRKS) 11.28 -0.07: In a pre-market note, CE Unterberg upgrades to Long-Term BUY from Mkt Perform. Cites tangible progress towards PRI integration, anticipation of a very near-term COO hire, and indication of industry bottom. Firm establishes a price target of $19.
10:45AM Brooks-PRI Automation (BRKS) 11.27 -0.08: CE Unterberg Towbin upgrades LT Mkt Perforn to LT BUY. Target $19. Believes internal execution risk is subsiding due to progress toward integration of PRI Automation, anticipation of near-term COO hire, and indications of industry bottom.
10:14AM Veeco Instruments (VECO) 14.67 +0.17: Merrill Lynch upgrades Neutral to BUY. Target $21. Cites factors including lifting of FEIC merger overhang, improving orders driven by advanced metrology, financial performance out-pacing peers, potential upside from data storage industry, and attractive valuation.
10:13AM Photon Dynamics breaks $15.97 one-yr low (PHTN) 15.85 -0.84:
9:55AM Sector Watch: Semiconductor : -- Technical -- The bias is firmly negative but the sector index (SOX 282) is attempting to stabilize after testing support at 279 (62% retrace Oct/Dec rally). Semi-equip names have rotated in the black (KLAC, AMAT, NVLS) with INTC (15.77) also working off its low. The worst performers thus far include: LSCC -1.9%, XLNX -2%, BRCM -2.7%, TXN -2.4%, LSI -3.1%.
9:54AM Technical Levels : Now the Nasdaq has gone on something of a losing streak of late. To be specific, the index has slipped 119 points off its January 14th high, which amounts to an 8.1% slide in a matter of just seven sessions. So before we get straight to the current technical outlook, it probably makes sense to touch on the recent bias in this column.
Note that way back on the morning of Thursday, January 16th -- the week before last week -- we became somewhat more cautious on the near-term outlook. The exact characterization was that we were looking for 'a consolidative bias within the context of a broader uptrend'. Much of the reason for this less enthusiastic tone was the Nasdaq had just formed a bearish engulfing pattern. Yet we refrained from shifting decisively in favor of a near-term bearish bias largely because up to that point, the index had managed to hold its 200-day simple moving average.
Now that review was followed by the Friday, January 17th piece -- again, the week before last week -- in which we addressed this issue of the socio-political backdrop and how uncertainty can inhibit the bid. As it turned out, the bid was definitely lacking that Friday which induced our Tuesday, January 21st review -- following the three-day weekend -- in which we switched to a 'more firmly consolidative bias.' This firmly consolidative bias was reiterated on Wednesday, January 22nd, before we began looking for -- and received -- an oversold bounce last Thursday.
All of which served as the backdrop for the big question in our Friday review. Namely, within the context of this bearish price action, how would the index respond following its Thursday rally. The specific question we asked was -- 'Does the index sell off hard and hold towards its lows, or does it simply consolidate yet favor those key overhead levels?'
Well in case you missed it, Friday's price action was relatively ugly. The Nasdaq slipped 46 points on the session, carving out a one-day, 3.3% loss in the process and finishing very close to its session lows. Now the sell pressure once again occurred on moderate volume, not quite making 1.6 billion total shares traded. Yet by the end of the session, the market internals were solidly bearish with declining volume leading advancing volume by almost 7 to 1 -- a ratio approaching the extreme.
So the fact of the matter is whether you attribute this weakness to Iraq, or to first quarter earnings, the technical picture continues to look less than encouraging. Now from a trading perspective it may be unwise to go aggressively short here as developments between the U.S and Iraq could lead to a sharp, 'unexpected' rally. Whether any trading rally begins to 'price itself in' ahead of the fact is clearly an open question.
At any rate, the straight technical read is the markets appear vulnerable to additional losses at this point. Now we've been looking towards support at 1330 since last Tuesday -- in a sense that has been our line drawn in the sand. So the reaction to support in that area will be important to watch. Keep in mind that conventionally, it looks as if 1330 would represent an attractive entry point for aggressive traders. Yet the trade activity this week can be expected to be anything but conventional.
If for some reason the 1330 level should fail on a closing basis, watch for subsequent support points at straight-line support in the area of 1319, and then again by an additional floor at congestion in the vicinity of 1297 to 1300. Should the index move higher, look for initial resistance in the range of prior congestion at 1347 to 1350, followed by subsequent overhead at straight-line resistance in the vicinity of 1360. Other areas of interest appear as drawn on the chart. -- Mike Ashbaugh, Briefing.com
9:41AM Cautious comments from Solly on MRVL, LSI, BRCM : Salomon Smith Barney said in a pre-open note that they continue to be concerned that the steep, "unexpected rush" of HDD demand from early Oct through mid-Dec may have triggered double-ordering in the HDD component supply chain, and believes that the risk of a HDD IC inventory correction for MRVL has risen (MRVL price target is $13.60). Firm also believes that LSI could be a value trap (target $4), and anticipates that BRCM could move much lower if anecdotal evidence surfaces about other defections or collapsing employee morale (target $10).
8:40AM Veeco Instruments upgraded at Merrill Lynch (VECO) 14.50: Merrill Lynch upgrades to Buy from Neutral, citing the following factors: lifting of the FEIC merger overhang, improving orders driven by advanced metrology, financial performance out-pacing most peers, potential upside from data storage industry, and attractive valuation; price target is $21.
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