MORNING WATCH, Aug. 20
By Frederic Ruffy, Optionetics.com
8/20/2003 6:15:00 AM
optionetics.com
Stocks could see profit taking this morning after the Dow Jones Industrial Average ($INDU) set another new 14-month high Tuesday. After climbing 16 points yesterday, index futures were pointing to a 42-point loss in the Dow early today. Index futures were indicating a ten-point decline in the Nasdaq Composite Index ($COMPQ). In the absence of any major economic reports, investors are likely to focus on corporate news and rather disappointing earnings results from a technology bellwether.
Hewlett Packard (HPQ) reported quarterly profits and sales that fell short of analyst estimates late Tuesday. Earnings totaled 23 cents a share, and 3 cents below analyst estimates. The PC-maker said that deep discounts for personal computers and price competition were to blame for the shortfall. Shares of the PC-maker, which is a member of the Dow Jones Industrial Average, fell to $19.50 on Instinet, after closing the day near $22.00 a share.
Some areas of technology may see some stability, however, after Network Appliance (NTAP) reported a 67 percent surge in first quarter profits—to $27.1 million, or 8 cents a share, from $16.2 million, or 5 cents, a year earlier. NTAP was up $2.10 to $20.15 a share in pre-market activity. Meanwhile, technology stocks may also get a lift after Prudential Securities said it started coverage of Intel (INTC) and Texas Instruments (TXN) with “buy” ratings.
Yet, Intel was trading lower early Wednesday in overseas trading and one reason perhaps is the latest book-to-bill ratio, which was released Tuesday after the close of trading. According to Semiconductor Equipment and Materials International [SEMI], the latest book-to-bill ratio was .97. The latest reading means that $97 worth of new orders was received for every $100 of product billed for the month. According to SEMI, the three-month average of worldwide bookings in July 2003 was $763 million, or 6% above June 2003 levels of $722 million and 35% below year ago levels. Meanwhile, the three-month total of worldwide billings in July 2003 was $788 million, which was only a 1% monthly increase from June and 19% below the July 2002 levels.
Although weakness early Tuesday is probable, technical traders will be watching an important technical level on the S&P 500 ($SPX). Specifically, SPX is once again testing a key area near 1,000, which was a source of resistance in late-July. Above that, the S&P 500 faces a barrier at its yearly highs near the 1,015 level.
At the same time, the CBOE Volatility Index ($VIX), which has signaled market-topping conditions when it has fallen below 20 in the past, fell to 19.23 Tuesday. Taken together, the key resistance levels between 1,000 and 1,015 on the SPX, and VIX below 20, hold important technical implications. If SPX can make a definitive break above that level, VIX will probably continue falling and that will suggest this market’s latest advance is indeed much different than those of the recent past. If not, technical traders will look for weakness in the stock market and perhaps a significant fall during the historically volatile months of September and October.
Frederic Ruffy
Senior Writer & Index Strategist
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