To me the SOX and semiconductors in general serve as the backbone of the Nasdaq. My chart read suggests that any further pullback here will be very shallow.
Your own holdings seem to indicate that... don't they.
What far too many people here (at Silicon Investor) seem to misunderstand is that although these stocks are overvalued by virtually every standard of fundamental analysis they are also the only game in town for technology investors looking to cash in on predictable returns to profitability.
I agree we are very close to another springboard higher. This short week may not be the beginning of the next run higher but if it is not the next week will be.
On AMAT I prefer to think the company knows much more about the future than we do. I am hoping that the fundamental improvement for the company that is coming will continue to advance the stock. An article from CBS MarketWatch:
Dow snaps 5-week winning streak
Stocks gird for pre-announcement season
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 5:31 AM ET March 23, 2002
marketwatch.com
NEW YORK (CBS.MW) -- The Dow broke a five-week winning streak as investors braced for the first-quarter pre-announcement season, which kicks into full gear over the next couple of weeks.
The Dow closed the week down 1.7 percent, the Nasdaq shed 0.9 percent in its second week of downside action while the S&P 500 erased 1.5 percent.
While recent economic indicators have clearly revealed that the economy is improving, the timing of an improvement in earnings momentum remains cloudy. The disconnect between the two has produced an uneasy feeling among investors and jumpiness in the market.
Still, negative pre-announcements have been on the wane, as have been downward revisions from analysts.
"Wall Street is a little nervous about upcoming first-quarter earnings announcements and rising interest rates. Contrary to these Wall Street jitters, I think overall first-quarter earnings will be better than expected," commented Louis Navellier, portfolio manager of the Navellier Performance Funds.
Barry Hyman, Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum, said techs are the most vulnerable as the confession period gets under way. Outside of tech, he isn't expecting a poor pre-announcement season.
Hyman said the market is struggling to find leadership. Investors are looking to broaden out into other areas. Rotation is crucial in keeping market rallies alive, he explained.
While groups like the homebuilders and the deep cyclicals now look overvalued in light of their recent run-up, investors are hard-pressed to find other appealing areas.
Hyman said investors are having trouble transitioning away from the cyclicals because the lofty valuations in many other groups are limiting the available options, with techs a prime example.
Bonds take a bath, spurring concerns
Clark Yingst, chief equity strategist at Joseph Gunnar, is concerned about the sharply negative action in the bond market over the past month, which he believes could raise more valuation issues for equities.
The yield on a 10-year note closed the week at an eight-and-a-half-month high while the 30-year bond's yield is at levels not seen since May 2001.
"There are a lot of cross-currents and conflicting forces in the marketplace (right now)," Yingst said, referring to the mixed messages the economy tends to send out when it's in the process of turning.
"The Dow was merely correcting this week after a big move higher. It's entitled to some backing and filling," Yingst maintained, adding, however, that the Nasdaq could retest the 1,775 to 1,800 area.
Yingst feels the bad chart action in Intel, Cisco Systems and Microsoft won't allow the Nasdaq to make much headway over the near term. But he sees constructive patterns within the chip equipment sector in stocks like Applied Materials.
"Techs are still struggling and estimates still being cut, even with all the Fed stimulus in the market. It reflects the excessive investment in the group [in the late 1990s],"Yingst asserted.
More constructive
Stephen Massocca, president & head of trading at Pacific Growth Equities, said he's more constructive on the market than he was a week ago. He believes this week's "technical correction" has allowed stocks to work off their overbought condition.
Hyman notes that the end of first quarter may put a floor under the market as fund managers "window dress" their portfolios.
Earnings watch
Among the few earnings reports on tap during the shortened, upcoming week are: Walgreen, Manugistics, Stride Rite, Morgan Stanley, American Greetings and ConAgra.
Thomson Financial /First Call said the acceleration in positive pre-announcements is likely to continue, though many of the upward pushes are going to be driven primarily by inventory replenishment.
"The upward revisions at these companies will likely offset the downward revisions at others. That means the aggregate estimates for first-quarter and second-quarter earnings estimates may stay roughly at current levels, rather than experiencing the typical estimate trimming in more normal times," First Call said.
The earnings compiler said the pace of negative pre-announcements and downward estimate revisions by industry analysts continues to decelerate. Negative pre-announcements, in fact, are now 27 percent or more below those of each of the last four quarters at the equivalent time.
First Call said industry analysts currently expect earnings to be up about 10 percent in 2002 but believes the more likely outcome will be a lesser gain, probably closer to 5 percent.
Economic data watch
Next week's economic calendar includes the release of February existing home sales, March consumer confidence, February durable goods orders, February new homes sales, weekly initial claims, the final reading of the Michigan consumer sentiment index, the final revision to fourth-quarter gross domestic product and February personal income and spending figures. Check economic calendar and forecasts.
"Consumer confidence, durable goods orders, personal income and spending should all head north, having responded to warmer climates. Look for the Conference Board to show consumers shaking off some of the Enron-related anxiety that had plagued last month's reading," commented Lynn Reaser, chief economist and senior market strategist at Banc of America Capital Management.
She said a gradual firming in capital spending should help boost new orders for durable goods for the third month in a row and expects a modest gain in employment and earnings to lend some support to total personal income and spending for February.
The economist expects mixed readings in the housing numbers.
"Do not be surprised to see some confusion in the direction of housing numbers in the coming week. Anticipate a fallback in sales of existing single-family homes in February after a huge advance in the previous month. In contrast, expect a rebound in new single-family homes following a considerable setback in January. Abstracting from the volatility of month-to-month numbers, the housing market has retained its fundamental strength," Reaser concluded.
Friday's trading activity
Equities ended with modest losses Friday after a brief stint in the plus column as negative news from McDonald's tempered investors' hunger for Dow stocks.
Tech issues also languished, with the software and chip sectors taking the biggest blows.
The broader market's weakness came from the natural gas, paper, biotech and defense segments. And oil service issues plunged after a cascade of downgrades in the group while the airline, gold, bank and drug segments carved out gains. Check market stats and latest sector performance.
The Dow Jones Industrial Average ($INDU: news, chart, profile) shed 52.17 points, or 0.5 percent, to 10,427.67. The biggest downside emerged in shares of McDonald's, Boeing, Intel, International Paper and Hewlett-Packard while green lights flickered in Coca-Cola, General Electric, Eastman Kodak, J.P. Morgan Chase and General Motors.
The Nasdaq Composite ($COMPQ: news, chart, profile) declined 17.44 points, or 0.9 percent, to 1,851.39 while the Nasdaq 100 Index ($NDX: news, chart, profile) fell 18.87 points, or 1.3 percent, to 1,470.10.
The Standard & Poor's 500 Index ($SPX: news, chart, profile) edged down 0.4 percent while the Russell 2000 Index ($RUT: news, chart, profile) of small-capitalization stocks lost 0.6 percent.
Volume came in at 1.23 billion on the NYSE and at 1.50 billion on the Nasdaq Stock Market. Market breadth was negative, with decliners outpacing advancers by 18 to 13 on the NYSE and by 20 to 15 on the Nasdaq.
Government bond prices reverted to their losing ways after a one-day respite on Thursday.
The 10-year Treasury note slid 7/32 to yield ($TNX: news, chart, profile) 5.395 percent while the 30-year government bond erased 10/32 to yield ($TYX: news, chart, profile) 5.815 percent. See Bond Report.
In the currency sector, the dollar climbed 0.6 percent to 132.80 yen while the euro declined 0.6 percent to 87.72 cents.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com in New York. |
