To: Sully- who wrote (52919 ) 6/7/2002 3:00:08 PM From: stockman_scott Respond to Market Sentiment: The market hasn't looked great over the past several weeks. Yet despite what looks like a washed out condition, many traders have contended we have yet to experience a capitulation day -- a session driven by indiscriminate panic sell pressure. It looks like that contention may not hold water after today. Last night after the close, technology bellwether Intel (INTC) warned it would fall short of consensus estimates for the second quarter. While we won't dwell on the intricacies of its outlook, it probably makes sense to take a quick look at its topline guidance. Management now sees second quarter revenue in the range of $6.2-$6.5 billion which is under the current consensus estimate for revenues of $6.7 billion. If the company hits the bottom end of its range, the number is 7.5% below consensus -- if it hits the top end, then it's 3.0% short. The question at this point is how this impacts the broader markets. Keep in mind that the market sold off relatively hard just yesterday. The catalyst? Recent Intel bull Merrill Lynch downgraded the semiconductor heavyweight to Neutral from from Strong Buy. Due to the impeccable timeliness of that call, the Nasdaq slipped 40 points or 2.5% prior to Intel's warning. With that in mind, it's worth looking back to April 8th and what happened in the aftermath of IBM's 'disastrous' warning. While IBM itself got hammered for a one-day 10-point loss, the Nasdaq recovered from a 39-point gap lower to post a 15-point gain on the day. So while the ultimate outcome today remains unclear, it is clear that the market's reaction today is well worth watching. Market bulls will point to a few different dynamics: 1) the 100-point Nasdaq plunge since Wednesday's close, 2) the better-than-expected Employment Report out just this morning, and 3) the generally oversold condition of the market going into today. Market bears, on the other hand, will point to: 1) the poor timing of Intel's guidance as 'earnings warnings season' has yet to kick in, 2) the seasonal slowness of the Summer and how it leaves little incentive to buy today, and 3) as far as today is concerned, it's Friday -- why bother to pick anything up ahead of a weekend marked by political uncertainty? For traders working the Nasdaq, keep an eye on how large cap names outside of Intel act. If Cisco, Sun Microsystems and/or Microsoft start edging towards the flatline, it's probably time to start thinking long. Market internals are another cue worth considering. This morning, declining volume outpaced advancing volume by about 19 to 1 off the open (a skew of that magnitude is rare). If that ratio edges towards 5 to 1, professionals are likely to start nibbling on their favorites. Regardless of the outcome, look for the next market debate to center on whether today's 55-point gap lower qualifies as the capitulation many traders were seeking. -- Mike Ashbaugh, Briefing.com
