From Briefing.com: General Commentary - After a long losing streak, which saw the Nasdaq slide to new multi-year lows, the index has now strung together three straight weeks of gains. Driving the recovery effort has been better-than-feared Q3 earnings, a perceived calming of tensions between the US and Iraq, short-covering and technical buying (prompted by the market's deeply oversold condition). While it can be easy to get caught up in the market's new found optimism, Briefing.com thinks it's important to keep the rebound in perspective.
First of all, there's been little to no change in the underlying fundamentals. The economy is growing, but at a relatively anemic pace due to a continued lack of business investment. Unfortunately, the guidance coming out of the post-earnings conference calls suggests that the IT slowdown will remain a drag on the sector/economy for at least another 3- to 6-months, with several firms suggesting no material pick up in demand until 2004. In other words, we can expect more of the same. Earnings that might beat consensus estimates -- not because demand is picking up, but because companies are getting meaner and leaner.
Second, Briefing.com maintains that there's been no substantive change in the US/Iraq crisis. We've argued for months now that any action, if it were to take place, would occur after the November 5th elections but before the new Congress convenes. That time frame just happens to correspond with the best weather conditions for an attack. We've also heard little from the Bush Administration over the last week to alter our view that it prefers a military solution to the Iraqi situation. Consequently, we think it's too early to factor out the risks of war.
Finally, it's important to keep in mind that the rebound, while a delightful change of pace from the daily drudgery which was September, has yet to alter the long-term technical picture. As Briefing.com noted the other day, the Nasdaq is just now approaching its 22-month bear trendline. Even if Nasdaq does poke its head above the 1365 area, we would need to see a decisive move above the 1400-1428 range before we began to consider the advance anything more than a bear market rally.
Are there reasons for optimism? Sure. The economy shows little sign of slipping back into recession; operating efficiencies are improving; weak players are slowly being weeded out; valuations are much more reasonable (in general); and market internals are strengthening. Nevertheless, until we see consistent evidence that the sector's fundamental/technical underpinnings have undergone a material transformation, Briefing.com will continue to recommend that investors approach this rebound with a healthy dose of caution.
Robert Walberg
Close Dow +126.65 at 8443.99, S&P +15.15 at 897.65, Nasdaq +32.42 at 1331.13: The major averages finished higher behind a batch of economic data which carried mixed implications. For the week, the Nasdaq gained roughly 43 points, amounting to a 3.4% advance, while the Dow added about 122 points for a 1.5% gain. In data released Friday morning, both new and existing home sales reports came in better than expected for September. New home sales rose 0.4% to a 1.021 million annual rate versus the 990,000 consensus. At the same time, existing sales rose 1.9% to a 5.40 million unit rate versus a 5.35 million consensus. These reports confirm that low mortgage rates and a low unemployment rate continue to fuel the housing sector. The September new homes sales mark yet another new record pace exceeding the prior record of August...
Separately, September durable goods orders dropped 5.9% as a larger than expected 16% slide in transportation orders caused most of the weakness. Excluding transportation, orders were down just 1.0% which was not all bad following the strength experienced over the prior two months. Yet perhaps the most disappointing number was the 6.6% decline in nondefense capital orders ex-aircraft. This decline completely unwinds the strong July increase of 6.7% -- although it may just represent volatility, along with other manufacturing evidence, the data suggest the manufacturing sector continues to drag...
Also note that the final reading for the October University of Michigan consumer sentiment index was revised slightly higher to 80.6 for the full month of October. Note that the October level is well below the 86.1 of September 2002 and even below the 81.8 of September a year ago when the nation's sentiment was hindered by the September 11th attacks. Nonetheless, traders appeared to be pleased that the number did not come through with any significant surprises...
Outside of the economic data, there were also a few interesting developments on the corporate earnings front. Note that Amazon (AMZN) traded 2.8% lower behind a sell-the-news reaction to relatively solid numbers reported Thursday night. Yet health insurer Cigna (CI) was another big story Friday after cutting guidance. Cigna plunged more than 38% on the session and weighed on the insurance names despite Wall Street's defense of its peers. In fact, CIBC World Markets went so far as to upgrade Aetna (AET +1.1%) in anticipation of lower prices due to the Cigna news... Looking towards next week, the economic calendar has a few notable reports. Nonetheless, the impact reports appear to be back-end loaded. Closing out next week on Friday, both the October Employment Report and ISM Index are set for release. For a complete list of what to expect on the economic front, please visit Briefing.com's Economic Calendar. DJTA +0.4%, DJUA +1.9%, Nasdaq 100 +3.2%, Russell 2000 +1.8%, SOX +5.0%, S&P Midcap 400 +1.6%, XOI -1.4%, NYSE Adv/Dec 2228/1025, Nasdaq Adv/Dec 2068/1143
4:24PM Oak Tech sees revs from combined company down off estimates (OAKT) 2.07 +0.25: Company announces closing of acquisition TeraLogic acquisition, sees revs from combined company down sequentially up to 15 percent vs previously forecast 5%, however still sees Q4 (Dec) pro forma EPS quarter of a loss of $0.21-0.23 vs Multex consensus of $0.17, reiterating guidance given in Oct 7 earnings release.
3:53PM Varian Semi (VSEA) 22.67 +2.13: While not immune to weakening fundamentals, company demonstrated its effectiveness in controlling costs this quarter, delivering better than expected Q402 results of $0.04 vs. Multex consensus of $0.03 and reaffirming Q103 revenue guidance. Thomas Weisel thinks strong operating performance will be tempered by two difficult quarters ahead, but increases Q1 EPS estimate to $0.07 from $0.02 and reiterates Attractive rating. Morgan Stanley, likewise, increases estimates; although expects near-term semi capital equipment news flow to remain negative, thinks longer term, improving economy and new technologies should drive cyclical rebound that builds momentum in Y03 and beyond. Shares are 10.4% up on encouraging earnings and notes.
3:29PM Brocade rises on positive preannouncement chatter (BRCD) 8.01 +0.64: -- Update -- We are hearing trading floor talk that BRCD may preannounce to the upside before Lehman's storage conference on Tues Oct 29; while there is no way to confirm this, traders cite ELX's strong results yesterday as well as a positive Lehman note which said the firm was confident in BRCD's numbers.
2:40PM TriQuint Semi (TQNT) 5.10 +0.19: Wireless strength offset relative weakness in cap-ex dependent areas such as backhaul and optical in TQNT's Q3 report last night; co matched consensus estimate of a loss of $0.01 and guided Q4 revs to $71-$75 mln vs consensus of $74.3 mln. Analysts maintain their underweight stance on wireline cos: CSFB believes the lack of supply chain visibility, a questionable consumer, short component lead/cycle times, and hub-inventory relationships could make Q4 volatile and firm assigns a $3.50 price target to shares. Salomon Smith Barney believes business remains weak across many unit and also sees a weak Q4: expects TQNT's exposure to MOT's inventory build could mar performance.
1:27PM Zoran (ZRAN) 14.06 +1.26: Small cap semi name is faring better than its large cap peers thanks to strong sales in Japan; co topped consensus estimate of $0.23 by $0.02 and analysts continue to recommend ZRAN based on co's fast-growing DVD line. Soundview believes ZRAN's Japanese customers are well positioned to gain share through H202 and maintains their Outperform rating and $17 price target. CIBC raises estimates on their belief Q4 is on track and the DVD holiday sell through is strong; rates stock as attractive despite recent run up.
12:30PM JDS Uniphase (JDSU) 2.24 -0.18: Over 75% down YTD, shares are continuing their decline in today's session following earnings report of loss of $0.07 for Q103, $0.01 worse than Multex consensus, and Q2 warning of revenues of $150-160 mln vs. estimate of $181 mln. Pressuring shares are multiple downgrades, including UBS Warburg's to HOLD from Buy, CSFB's to UNDERPERFORM from Neutral, RBC Capital Mkts' to UNDERPERFORM from Sector Perform, and CIBC Wrld Mkts' to SECTOR UNDERPERFORM from Sector Perform. CSFB thinks even current valuation is too rich.
11:55AM Emulex (ELX) 17.18 +3.38: Company may have diminished investors' fears associated with weak tech environment in its Q103 earnings report, which came in at EPS of $0.19, $0.03 better than Multex consensus; company also guided up Q4 to EPS of $0.19 vs. consensus estimate of $0.17. Shares are up nearly 25% in today's session due to impressive results and positive commentary. Deutsche Securities believes factors that drove Q1's upside are sustainable; looks for seasonally strong Q2 and attractive valuation to drive shares, which have significant upside potential; upgrades to BUY from Hold. Thomas Weisel, impressed with company's fundamentals, views ELX as best idea due to shares trading at substantial discount to its chief competitor, Qlogic (QLGC 32.47 +1.17); reiterates Buy rating.
10:55AM UBS Warburg on Semi Production Equipment : Although maintaining positive long-term view on sector, firm downgrades AMAT, KLAC, NVLS and PLAB to HOLD from Buy based on recent run-up in price driven by liquidity and momentum, rather than fundamentals; thinks at current levels downside risk outweighs upside potential for group; with oversupply, poor demand and slow global economy thinks recovery off the bottom, expected in Q402-Q103, will be slow to gain traction.
2:39PM NVIDIA said to gain share from rival ATI (NVDA) 10.94 +0.48: Sources are telling us that UBS says a report will be released on Sunday that will indicate that NVDA has gained mkt share against rival ATYT.
8:57AM Qualcomm estimates raised by Lehman (QCOM) 35.39: Lehman raises ests for QCOM following upbeat mgmt meetings and ahead of Nov 7 results and Nov 13 analyst day; cites solid demand, growth in China and India, and easing inventory concerns; raises FY03 est to $1.13 from $1.08 (above consensus of $1.09) and raises price target to $38 from $35.
finance.yahoo.com^SOXX+AET+ALTR+AMAT+AMD+AMZN+ATYT+BRCD+BRCM+CI+ELX+INTC+KLAC+LLTC+LSCC+LSI+MOT+MU+MXIM+NSM+NVDA+NVLS+OAKT+PLAB+QCOM+QLGC+TER+TQNT+TXN+VSEA+XLNX+ZRAN+^VIX+^IXIC+^SPX&d=t
Bob, be sure an include a chart link, if you can, when you are discussing technicals for us please. That way we can see what you are seeing too.
Thanks, RtS |
