Tech Stock Analysis
General Commentary
It's getting to the point where this market is just plain boring. Total volume traded on the Nasdaq is drying up and it's becoming more common for say eight-point trading ranges on the index to drone ON and ON for several consecutive hours. Note that's an eight point trading range on the index -- not long ago there were particular issues (e.g. JNPR, CIEN, YHOO, AMZN... you name it) that could barely be confined to such stability. Yet for better or worse, this is the way it is now and the way it's likely to be for some time.
As we noted yesterday, Briefing.com remains in the bullish camp though we're growing less confident in our intermediate-term bullish outlook. Tuesday night, investors glimpsed notable earnings reports from the semiconductor equipment group (Applied Materials - AMAT), the storage sector (Network Appliance - NTAP), software (BEA Systems - BEAS) in addition to a quarterly report from market enigma Nvidia (NVDA). As the leading semiconductor equipment company, the report from Applied Materials is most likely to set the tone for Wednesday. While AMAT was less than screamingly bullish, the guidance was a point of interest nonetheless. The company expects a flat October quarter with orders bottoming out followed by "modest improvement" early next year. No need to mortgage the house just yet but that's the kind of language market bulls would like to hear.
As an interesting aside, graphic chips maker Nvidia (NVDA) announced it will be cut in half the traditional way -- via the very rare 2-for-1 split. Definitely beats the arduous and gruesome "cutting in half" most technology issues have been forced to endure. It also serves as another reminder of the difference in today's market. Two years ago, traders would position themselves for a 3-for-1 split out of Garbage.com.
Getting back to Nasdaq 1900's, there are a few points worth mentioning from a technical perspective. Tuesday's failed rally attempt and close near the session's lows did little to inspire near-term enthusiasm. Nonetheless, we see the Nasdaq as oversold on a near-term basis and continue to favor a move higher even if it's modest. As for upside resistance, the immediate area higher continues to be cluttered with potential resistance points. We'll keep it relatively simple this time and focus on two important levels: 1) the well documented 2000 area which approximates gap resistance going back to April, represents psychological overhead and served as Tuesday's intraday high and 2) the area around 2050-2057 which approximates the convergence of the Nasdaq's 50 and 100-day simple moving averages in addition to representing trendline resistance going back to the May highs. We aren't necessarily looking for the 2050/57 level soon, it's simply worth mentioning that things will get interesting if that area is cleared.
To the downside, there are three potential areas of support worth watching. Probably the strongest support level is the first one which is in the 1950-1954 area. This has served as opening and closing support going back to May and the Nasdaq has shown little inclination to head lower with two or three exceptions. The second candidate is modest support at 1935 which represents the lower end of the 20-day Bollinger bands and approximates intraday ventures into lower territory. These are followed up by stronger support in the 1890 area which approximates gap support going back to April in addition to a 62% retracement of the entire Spring rally. The dry trading conditions, poor sentiment and general lack of interest in the Nasdaq continue to favor a move higher in our opinion. But if the market decides to head lower keep those downside support levels in mind.
Market View
Market Outlook
Market continued its topsy-turvy ways this week... Unfortunately, that meant lower prices for the major market indices, which were generally higher in the preceding week... As we've seen now since about mid-April, what the market gets one week it tends to give back the next... That's what happens when stocks are working off overhead resistance... As long as the bottom of the ranges aren't breeched, eventually the resistance is worked off and the indices will press higher... However, the closer the indices get to the trading range bottoms the more nervous investors tend to become... If buyers become too nervous and decide that the best course of action is no action, we could see the indices break range supports, triggering another wave of technical selling... We avoided that fate this week, but only barely as tech -- the market leader -- came under renewed selling pressure.
Bearish comments made by several key analysts weighed on software, semiconductor and telecom equipment/networking stocks... The storage group also took a beating, as investors began to question timing and magnitude of eventual turnaround... Despite the selling, none of the groups took out key support levels.
Elsewhere, retail stocks held their own amid a mixed bag of same-store sales... Discounters such as Wal-Mart (WMT) and Target (TGT) posted decent numbers, as did select apparel companies... However, other apparel makers like Gap (GPS), Abercrombie & Fitch (ANF), AnnTaylor (ANN) and Pacific Sunwear (PSUN) posted soft comparisons (didn't prevent ANN from trading higher, however).
While tech was down and retail was mixed, gold, publishing, soft drink and hospital mgt stocks were among the week's big winners... Other losers included the previously hot homebuilding and the still suffering oil sectors.
Looking ahead to next week, focus shifts back to earnings... Investors will get a good look at the retail sector, as WMT, Home Depot (HD), Federated Stores (FD), Children's Place (PLCE), Kohls (KSS), GPS and JC Penney (JCP) due to release their quarterly results... Also get a final wave of tech earnings, with Hewlett-Packard (HWP), Ciena (CIEN), Dell (DELL) and BEA Systems (BEAS) some of the more notable names due to post earnings... Unlikely to get much new from tech companies, but traders will be watching retailers closely for indications of consumer spending patterns.
Please note: Briefing.com is provided as an information service only. Briefing.com does not make specific trading recommendations or provide individualized investment advice. Readers should make investment decisions based on thorough research and their own investment criteria. See Disclaimer. |
