From Briefing.com: General Commentary - It's been Briefing.com's contention that the current rally is due to inside baseball factors such as oversold technical indicators and short-covering, and not to a meaningful change in the sector's/market's underlying fundamentals. If our assumption is correct, then the rebound should be on its last legs as the same technical tools which pointed to a rally a month ago are now at their highest levels in nearly a year. In fact, the last time we saw RSI and MACD readings like the ones we have now, the indices were about to roll over.
As we've noted from time to time, the market can remain overbought for an extended period before finally succumbing to actual selling pressure. Given the generally favorable seasonal bias, it wouldn't surprise us if the sector/market chopped around near current levels for a week or two. However, there's no question that the bulk of this move is already in the bag.
Though indices managed to fight through some disappointing economic data, the reality of the data is that the long-awaited earnings recovery isn't coming any time soon. Not this quarter, not next. At some point investors will again grow despondent over the fact that earnings aren't growing at a rate sufficient to support higher stock prices. Tough to say when that time will come, but it will, and when it does the market will be in for another rough patch.
Tech, which has helped pace the recovery, is almost certain to lead the pullback. Other than the fact that companies have become leaner, sector fundamentals simply haven't improved much over the past few months. And if the overall economy begins to slow, the modest upturn we've seen in IT spending over the past quarter is sure to be reversed.
No question momentum is bullish and sentiment has improved considerably over the past month. Seasonals also working in the sector's favor. However, with technical tools now overbought and sector fundamentals still weak, chasing this rally at this point is foolish. And, as the old saying goes, a fool and his money are soon parted.
Robert Walberg, Briefing.com
6:52PM Weekly Wrap: Given all the hurdles it had to overcome, the recovery rally exhibited surprising stamina. Fighting off a slew of disappointing economic data, the market managed to end with modest gains, thereby extended its winning streak to four straight weeks. Not bad for a market left for dead just one month ago.
Fact that indices continued to climb despite news that Unemployment rose by 0.1%, Nonfarm Payrolls fell by 5k, Auto Sales dropped sharply, ISM index dipped to 48.5 - its second straight month below 50 and Consumer Confidence plunged to 79.4 - it lowest level since 11/93 , suggests one of two things. One, investors view the mixed to sluggish economic data as old news, and are more concerned with the outlook 3- to 6-months from now Or, two, the market has temporarily lost its head.
While Briefing.com never discounts the possibility of the latter, especially on a short-term basis, we contend that the resilience in the face of such overwhelmingly disappointing economic news shows that the market is looking beyond the here and now to a few months down the road when it expects a more upbeat scenario. Of course, skeptics would be quick to point out that bulls have been promising an economic/earnings recovery for a couple of years now - only to have to scale back expectations and push out time horizons.
Though Briefing.com confesses to being a bit surprised by the market's resilience, we were among the firms calling for a sizable corrective rally around earnings season. In fact, the major market indices have now run up to levels we targeted weeks ago. And while we don't like the idea of fighting the tape, we are concerned that the underlying fundamentals don't support a continuation of the rally. At least not in any meaningful way.
About the best thing the market has going for it currently is the bullish seasonal bias. Then again, October is traditionally a difficult month for stocks - and we just completed our best month in nearly 15 years.
In the week ahead, the market will take its directional cue from a) the Fed - street expects Greenspan & Co. to cut funds rate by 25 basis points to 1.5%, b) the election - Briefing.com predicting that Republican's hold the House and control of Senate goes down to wire though Democrats are likely to retain control. In other words, no change so no big deal for stocks, and c) Cisco's earnings - company needs to meet/beat estimates and provide nonalarming guidance in order to keep tech rally alive. For a full list of companies scheduled to report results see Briefing.com's Earnings Calendar.
4:12PM Global semiconductor sales up : The Semicoductor Industry Association reported that Q3 global semi sales were $36.9 bln, up from $34.1 bln in Q2.
2:55PM Brooks-PRI Automation (BRKS) 14.43 -0.86: Last night, company announced CFO Ellen Richstone's resignation to pursue other opportunities. News of such nature are almost never well-received and this case is no exception, with shares having declined 5.6% in reaction. Richstone was instrumental in helping BRKS build its complete automation portfolio through numerous acquisitions and according to SG Cowen, transition will be challenging due to "complexity of business and ongoing restructuring". CSFB maintains estimates, but is cautious on shares due to potential for push-outs from excess industry capacity and muted demand growth as well as disappointing Y03 chip capital spending budgets.
2:35PM ChipPAC (CHPC) 2.61 -0.04: Although still 1.6% in the red, shares have been on steadily climbing in today's session following last night's Q302 earnings of loss of $0.03, $0.01 worse than Multex consensus of loss of $0.02. Despite miss, analysts are optimistic about shares. Thomas Weisel is not surprised by earnings miss; reduces Q4 and Y03 estimates, but believes CHPC's competitive position continues to strengthen; reiterates Buy rating; expects patient investors to be rewarded when semi industry growth resumes. Soundview Technology, although disappointed with earnings and expecting shares to give up recent gains, looks for shares to outperform significantly in long term; maintains Outperform rating.
2:18PM Momentum Movers : Telecom Equipment: SONS +25.0%, JNPR +22.8%, CIEN +15.1%, PDYN +12.1%, TLAB +8.2%, ALA +7.6%, ADCT +5.7%... Networking: AVCI +18.9%, EXTR +16.6%, MRVC +8.9%, CSCO +4.9%... Wireless: TPC +11.8%, AWE +10.3%, NXTL +7.9%, PCS +6.9%... Semis: TXCC +30.0%, PMCS +15.0%, TUNE +13.3%, AMCC +11.3%, FCS +10.6%, NVDA +9.8%, PWAV +8.2%, VTSS +7.3%.
1:22PM Thomas Weisel on Semi Cap Equipment : After traveling with Advanced Energy's (AEIS 12.62 +0.52) management and confirmation of order strength from Applied Materials (AMAT 15.38 +0.35), firm reiterates Mkt Weight rating on sector; recommends investors focus on balance sheet strength and competitive positioning as key metrics for getting involved in sector. Specifically, firm thinks AEIS's cost-reduction efforts reflect likelihood of weak environment lasting for next nine months; also, firm thinks AMAT's orders from UMCi and Powerchip have little chance of delivery in next 12 months, making them purely cosmetic and jeopardizing company's order guidance for 5-15%. With shares 40-60% off their lows, firm believes investors will be able to buy stocks at lower prices before upcycle resumes.
12:03PM Nasdaq Composite Intraday : -- Technical -- Index able to push higher once resistance highlighted this morning (see 09:52 comment) was taken out. However, this week's high at 1347 (also Sep high) has continued to stymie the advance. Given that the index jumped more than 2% off the low and that we are entering the midday lull, consolidative trade may begin to take hold. Intraday supports are at 1336 and 1332/1330. A near term breakout initially points to the 1355/1360 area followed by 1370/1375.
10:54AM Another $1-stock rally : Speculators continue to search the bottom of the market for opportunities. The percentage gainers list this morning is dominated by stocks in the $1 to $3 category. Among the standouts are Elan (ELN 2.14 +0.39, +22%), Acclaim (AKLM 1.24 +0.18, 17%), Vitesse Semi (VTSS 2.00 +0.24, +13.6%), Atmel (ATML 1.89 +0.22, +13%), Charter Comm (CHTR 1.26 +0.13, +11.6%), Calpine (CPN 2.20 +0.20, +10%), Solectron (SLR 2.47 +0.22, +9.8%), JDS Uniphase (JDSU 2.42 +0.16, 7.5%), Corning (GLW 2.00 +0.13, +7%). Each of these stocks has traded at least 1.5 mln shares so far this morning; VTSS has traded 13 mln, or 1.5x avg daily volume (stock rose 31% yesterday on 31.7 mln shares).
10:46AM Sector Watch: Semiconductor : -- Technical -- Sector (SOX at 300 +1.9%) pushed higher in recent trade with NSM +3.8%, MU +4.2%, XLNX +3%, ALTR +2.3%, AMD +2.6% and AMAT +1.5% leading the way. Continued intraday posture above 298/297 for the index suggests the bulls will retain control. Next resistance is at 303 in front of the high for the week at 305. The 62% retracement of the Aug/Oct slide come in thereafter at 307.3.
10:25AM Weak spending number cuts into GDP forecasts : The 0.4% consumer spending decline for September will quite likely lead to downward GDP revisions for Q4, as in the arcane science of GDP accounting, how the prior quarter ends is an important determinant of how the next quarter's GDP pans out. Already, Goldman Sachs has cut its Q4 GDP estimate to 0.5% from 2.0%. More such cuts are likely, but it's important to note that the market will be more concerned with the latest monthly numbers than the GDP tally - it's already a fait accompli that Q4 GDP will be significantly weaker than Q3.
finance.yahoo.com^SOXX+ALTR+AMAT+AMD+BRCM+BRKS+CHPC+INTC+KLAC+LLTC+LSCC+LSI+MOT+MU+MXIM+NSM+NVLS+TER+TXN+XLNX^VIX+^IXIC+^SPX&d=t
Don, the charts actually look pretty good up to the levels I described in the previous post. After that I honestly believe we need some good news to keep the rally going.
RtS |
