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IDEA Outlook: At Midday -- 12:45 PM EST
The Scoop: Stocks are split by midday Tuesday as blue chips take a breather from a two-day rally, while techs edge higher on an Intel [INTC: Nasdaq] upgrade. Economic data is positive, but the most important information of the week, February jobs data, won’t be released until Friday. Until then trading may be volatile as investors continue to gather evidence that the US economy is recovering in earnest. The signs of a turn around are there; however, so while profit taking may be in order today, positive momentum is still a driving factor.
The Outlook: Some consolidation, after the sharp two-day run-up, is to be expected: The market had quickly become overbought. Look for more volatile trading between expected support and resistance (see table) immediately ahead. The bias toward the DJIA-type names is likely to persist until confidence increases in earnings quality and growth. Meanwhile, many tech/NASDAQ names are likely to remain unpredictable.
Market Data Dow Nasdaq S&P 500 Russell 2000
Last 10514 1879 1152 488
Support: Initial/2nd 10250/9900 1775/1715 1110/1080 475/465
Resistance: Initial/2nd 10650/11000 1890/1950 1175/1200 500/515
Trend: Intermediate/Minor U/U U/D U/S U/S
Note: Support and Resistance levels are presented as single numbers and as such are approximations. Trends: Intermediate (typically weeks to months in duration); Minor (days to weeks): U = Up, D = Down, S = Sideways.
Beyond the Market:
ISM Shows Expansion: At 15:00 GMT, the government released the ISM non-manufacturing index for February with a reading of 58.7. This was far ahead of economists expectations of 51, and up from of January’s 49.6. Market Impact: The ISM manufacturing index showed an expansion for the first time in 18 months, and an expansion in the non-manufacturing index is further evidence of economic recovery. However this is a relatively new index and it doesn’t carry the same weight as the manufacturing ISM or for that matter, the jobs data.
Job Eliminations Drop: According to research firm Challenger, Grey, & Christmas, job eliminations fell 40% in February, the lowest level since June. Market Impact: No doubt this is good news and suggests the US is finally pulling out of its rut. Still, the job data figures on Friday will be key.
Upping Dow Targets: The chief equity institutional analyst at Salomon Smith Barney, Tobias Levkovich, upped his targets for the Dow and S&P 500. Levkovich sees the Dow reaching 11,400 this year from earlier expectations of 10,800 while the S&P 500 should increase 13%-17%. Levkovich also said companies should be sounding off with more upbeat outlooks as growth looks to recover from increased demand. Market Impact: With data suggesting recovery, many are taking a more upbeat view the stock market.
Sector Watch:
Semiconductors: Mostly the gains here have to do with a Morgan Stanley Dean Witter upgrade of chip bellwether Intel [INTC: Nasdaq]. The investment house raised its rating of the firm to Strong Buy from Market Outperform, though CS First Boston chimed in, saying it doesn’t see Intel raising its expectations. Still Intel shares are up 3%. Texas Instruments [TXN: NYSE], after the bell Monday reiterated its Q1 EPS and said sales year-to-date were coming in strong. The chipmaker said if these trends continue, revenues in Q2 will rise sequentially from those in Q1. Analysts expect Texas Instruments to see sales of $1.8bn this quarter and $1.9bn next quarter. Shares have edged down $0.09 to $33.90. Also the Semiconductor Industry Association (SIA) reported Tuesday that worldwide chip sales fell 1.7% in January, but also said January tends to be a soft month for chips. Looking ahead, SIA is anticipating “slow growth” for Q1, improving to “double-digit” percentage growth in the second-half of the year. The Philadelphia Stock Exchange Semiconductor Index is up 2%.
Retailers: The sector is mostly lower despite earnings reports from a slew of firms that either met or surpassed expectations. Part of the reason, perhaps, is CS First Boston lowering "all retail sectors to an underweight position." Staples [SPLS: Nasdaq] reported Q4 earnings that trumped expectations by $0.03 per share, even though sales of $2.9bn fell 6% from last year. Still, Staples said 2002 EPS would beat the consensus estimates, which stand at $0.75 per share. Shares are up 1.5%. Costco [COST: Nasdaq] also posted results, coming in with Q2 profits of $0.41 per share, up 9% from what it earned in the year-ago period. Revenues rose to $9.2bn from $8.16bn and same-store-sales increased 7%. Shares are down 1.5%.
Airlines: Shares of airline stocks are mostly lower today with the exception of US Airways [U: NYSE], which is up 8%. Others are lower following a downgrade from CS First Boston. The brokerage said even if fundamentals have improved some, the companies still have a long way to go. AMR [AMR: NYSE], parent of American Airlines, is down 6% and Delta [DAL: NYSE] has dropped 5%.
Mover of the Day: Ford [F: NYSE] $16.10: Ford said on Tuesday that it’s on track with its restructuring. The company announced in January that it would cut 35,000 jobs and shut down seven US manufacturing plants in efforts to save money and return to profitability. Ford expects to breakeven this year and have annual operating profits of $7bn by the middle of the decade. The company also said its European division was doing well. Ford’s goal in Europe is to increase market share to 9.3% from 8.7% this year. Ford also said it would continue to utilize incentives as long as they were necessary, assuaging concerns that it was having difficulty on that score.
Technical: Ford failed to rally higher after filling the Sept. 17 down gap, so resistance at $19.37 remains the critical hurdle for now. The sideways trading continues. Downside support rests at $14, while short-term upside resistance lies at $16.75. Risk Tolerance ****
(* Low risk, *****High risk) |
