Market comments, INTC, ADPT, IRF, VLSI, NSM.
NASDAQ: The NASDAQ traded below its middle weekly bollinger band last week and rallied to close above it. While this is positive, the index was unable to trade above its previous weekly high for the third week in a row and that is negative. It is likely that the NASDAQ will test 1740 again and if that doesn't hold, it has more support between 1685 and 1710. There is an outside chance that the NASDAQ will fall back to its lower weekly bollinger band near 1600. This would also fill a gap on the weekly chart between 1629 and 1649 and would represent a huge buying opportunity if it happens.
Dow industrials: The industrials appear to have put in a short term top but they have support at the middle weekly bollinger band near 8680. I don't see them going as low as 8300 but would agree that the bias is down. Still, I view this as a correction and not a bear market and think that the Dow will trade sideways for a few months. I don't think one will be able to make much money in Dow stocks for a while and wouldn't put money in many of these stocks.
OEX: The OEX looks better than the Dow industrials and has support near 521. If 521 doesn't hold, then the index has more support at the middle weekly bollinger band near 512.
SOX: The SOX closed at its lowest level since January 98 and is very near its lower weekly bollinger band. Given that the index is trading near weekly support, the daily chart is extremely oversold, and sentiment is decidedly bearish towards semiconductor stocks, it is likely that it will hold. If it doesn't hold at 255, then the SOX has more support near 240. Semiconductor stock prices already reflect the problems in Asia to a great extent and I think we are very near the bottom of the probable trading range. While I'm not looking for a quick recovery in the SOX, I think it will likely trade in a wide range for a few weeks with resistance near 295.
INTC: I don't view the delay in Intel's Merced chip as a sector problem and think it will only have a short lived effect on a handful of stocks like INTC, HWP, and SGI. I don't think the news will hurt technology stocks in general, nor any stock for more than a spike. Intel traded down to its lower weekly bollinger band at 69 1/2 in after hours trading but I think the stock will likely hold near that price. The stock has a lot of support between 68 and 70 on the monthly chart. HWP is too diversified for something like this to affect the company in the long term and I don't think a dip on this news would last long. I'm not as familiar with SGI though the stock didn't decline in after hours trading on Friday.
ADPT: ADPT closed near its lower daily bollinger band at 15 on Friday and it is important that it hold this level from a technical perspective. The stock is very cheap based on forward looking fundamentals and has likely declined with the overall market and not because of any significant deterioration in the company's fundamentals. The stock is pricing in a catastrophe and it will rally substantially from 15 unless the catastrophe materializes. The company's fiscal year ends in March and the stock is trading at 15 x this year's estimate (with ten months to go) and only 8 x next fiscal year's estimate. This is ridiculously cheap given their expected growth rate of 20%. We'll see if the market agrees and the stock holds 15. The market isn't always right in the short term and this may be one of those times.
IRF: IRF had a good week considering the weakness in the SOX. The stock was unchanged for the week compared to the SOX which was down 4.5%. In addition, the money flow was positive every day last week as shown below.
Monday: Market closed
Tuesday: +53,900 shares out of total volume of 173,500 (31%)
Wednesday: +21,700 shares out of total volume of 207,100 (10%)
Thursday: +55,600 shares out of total volume of 157,200 (35%)
Friday: +3,600 shares out of total volume of 128,800 (3%)
The stock left a gap on Thursday between 10 3/8 and 10 1/2 and I would definitely buy it on a pullback to 10 1/4 or 10 3/8. As I have noted for several weeks, IRF has a lot of support in the 10 area and I think it will trade much higher in a few months.
VLSI: VLSI also exhibited good relative strength against the SOX Thursday and Friday and I think the stock is very close to, if not at a bottom. Volume declined on Thursday and Friday indicating a decline in selling pressure and this too is positive technical action. I think it is likely that the stock will trade in a range between 15 and 18 until June options expire and it should offer some good short term trades while it bases. I'm not planning to sell my stock but I do plan to hedge my position by selling covered calls on rallies and buying them back on dips. If 15 doesn't hold, then the stock has more support between 12 1/2 and 13. If it gets below 15, then it will be trading at less than 1 x sales and I just don't see that happening.
NSM: This stock looks like it is basing near 16 and I would begin to accumulate it. A rally to 19 or 20 looks possible if 15 3/4 holds.
In closing, I'd like to say that even though I think there might be some downside left in the Dow and NASDAQ over the short term, one can still make money from the long side of stocks. All stocks don't follow the indexes on the way up and all stocks don't follow the indexes on the way down. I'm positioning myself in stocks that I feel have already hit a bottom or are trading very near a bottom. If the market didn't make me nervous, I'd really be nervous gg.
Good luck to everybody next week. I'm going out of town on Monday and Tuesday and won't be around much. I welcome all feedback on this post.
Dan |
