Reuters Market Comment -
By Huw Jones
NEW YORK, March 5 (Reuters) - The Dow took Intel Corp's
<INTC.O> earnings warning in stride on Thursday, but analysts
said a sharp pullback going into April cannot be ruled out as a
new quarter beckons.
"Today is a lull before more of a correction," said John
Wosczyna, technical market strategist at Roney & Co.
"I think the Dow will come back to a high around the
month's end, and then it's very vulnerable and will have a big
decline. I can see a correction of 25 percent from this month's
high."
Michael Metz, chief investment strategist at CIBC
Oppenheimer, said, "I think a significant correction has
begun."
Intel, the world's biggest maker of computer chips, said
late Wednesday that first quarter earnings would fall short of
Wall Street expectations because of Asian turmoil and slower
demand and tougher pricing in the personal computer market.
It was a high-profile start to the pre-announcements
season, when companies warn of possible earnings
disappointments ahead.
U.S. stocks opened sharply lower this morning, but the Dow
quickly stabilized after hitting a low of 8450. It had recouped
to 8490, off 48, by early afternoon.
The S&P500 index was off six points at 1040.
The Dow has risen more than 1,000 points in the past seven
weeks, and today's weakness has been largely confined to the
technology sector, analysts said.
"If you look at the big picture, this is just a small
correction," said Ricky Harrington, technical analyst at
Interstate/Johnson Lane. "Stocks are overbought, but that does
not mean they are going to correct right now."
Institutions still have a lot of money and want to show
this is fully invested until at least the end of the quarter,
to stave off any big pullback, he added.
This would provide underpinning for stocks and prolong a
tug of war with the downward pressure exerted by earnings
warnings.
Rao Chalasani, chief investment strategist at EVEREN
Securities, believes stocks could retrace about one-third of
the recent 1,100-point rise in the Dow.
Jonathan Dodd, technical analyst at Morgan Stanley Dean
Witter, said stocks are probably in need of consolidation, but
he considers the Dow and S&P500 to be in excellent technical
health and not extended.
"The Dow is probably not going to pull back a lot, probably
to 8250 to 8350. It's not what people thought it would do,"
Dodd said. "We will get consolidations and corrections along
the way, but I just don't think they will last very long and
will be a buying opportunity."
The breakout in the S&P and the Dow was too strong and too
long for Intel's warning to crack the market, said Gary
Kaltbaum, technical analyst at J.W. Charles.
"Intel is definitely an event, but until you see the
utilities and the banks starting to crack, and long-term
interest rates at 6.25 percent, I don't think it's the end of
the world," Kaltbaum said.
At midday the benchmark 30-year Treasury bond, the leading
indicator of long-term interest rates, was off 15/32 to yield
6.05 percent.
U.S. unemployment and payrolls data for February, due
Friday, will be key in determining which way bond yields go in
the short term, analysts said.
REUTERS
Rtr 14:01 03-05-98 |
