More from Briefing.com: Close Dow -49.11 at 8537.13, S&P -7.91 at 894.74, Nasdaq -17.42 at 1359.29: A week that started with a bang ended with a whimper as the major indices suffered their second, straight losing session... Today's weakness was owed, in large part, to a sickly-looking healthcare sector that was sent reeling in the wake of some unsettling revelations from Tenet Healthcare (THC) regarding its growth prospects and the need to re-examine some aggressive pricing strategies that created increased outlier payments...
A Prudential downgrade of the hospital industry to MARKET UNDERPERFORM from Market Outperform, which was based, among other things, on concerns about the slowing rate of managed care volume and increasing government inquiries into mergers and reimbursement activities, certainly didn't help matters either... An added burden for the market was the realization that the leadership it had come to rely on from the healthcare sector was no longer reliable... That left a leadership void that didn't get filled and it served as a reminder to many participants that the market is due for a period of consolidation...
Fittingly, the market struggled to make much headway today as it spent the majority of its time in negative territory, pressured by the lack of influential leadership and underlying concerns that the rally off the Oct. lows may be running out of gas... The continued weakness in the dollar seemed to validate that notion as did the weak market internals... Separately, investors found reason to take some money off the table following the announcement that the UN Security Council voted 15-0 to adopt the U.S. resolution on Iraq that demands unrestricted arms inspections...
Though such action seemingly raises the odds of eventual military action given Iraq's poor record of compliance, the muted response in the oil, gold, and Treasury markets immediately following that news suggested such an outcome had already been discounted... Nonetheless, the decision acted as a restraint on buying interest throughout the day... Outside of Tenet Healthcare, McDonald's (MCD) and Safeway (SWY) drew some unwanted attention after issuing earnings warnings; meanwhile, Walt Disney (DIS) was held back after Merrill Lynch downgraded it to NEUTRAL from Buy on valuation... All in all, it wasn't a bad week as the indices ended close to where they started...
With today's losses, though, the S&P 500 and the Nasdaq had their 4-week winning streak come to an end...NYSE Adv/Dec 1311/1919, Nasdaq Adv/Dec 1410/1836
3:41PM Next week's calendar : Next week is relatively light for earnings reports, although watch for releases from WMT, AMAT, DELL, ANF, NTAP, INTU, TGT, and SBUX, among others. In addition, the UBS Warburg telecom conference begins on Monday, IBM has their analyst meeting on Wednesday, and Friday is a double witching day.
3:18PM STM comments on scheduling conflict : Shares of STMicroelectronics (STM) have given up about 2% over the past 30 minutes. Apparently contributing to weakness was trading floor talk that company will no longer present at a Lehman Tech conference later this month. An investor relations representative from STM confirms this rumor, telling us that the company will not present due to a scheduling conflict.
2:34PM SOX moves into positive territory, led by Semi Equip stocks : -- Technical -- SOX edges towards the flatline, currently in positive territory. Currently trading at 303, look for initial overhead at 304 followed by its 100-day simple moving average at 309. To the downside, watch for initial support at 300 followed by an additional floor at 296.
1:45PM Goldman Sachs positive on Semi Equip industry due to IFX capex guidance :
11:45AM SOX -1.5% rebounds on Morgan Stanley positive Semi Equipment comments :
11:16AM Sector Watch: Semiconductor : Sector has reversed the early gains, dropping as much as 4.6% off the early high. Weighing on the index this morning are: AMD -9.9%, MU -7%, TER -6.7%, NSM -4.9%, LLTC -2.3% and MOT -2.2%. Still bucking the negative bias is XLNX +0.6%. Next support for the SOX index is in the 294/292 area followed by 288. Takes a rebound back through the 306 and 310 levels to improve the negative bias of the last several sessions.
3:15PM Chart Watch : Over the last week or so on this page we have highlighted indices, sectors and individual issues that had performed admirably over the last month but were either at/near important resistance zones or were exhibiting some signs of weakness. New recovery highs were established this week by most but in the latter half the sector/issues along with the averages have begun to backtrack.
While the losses have been limited thus far, we have seen cracks in some of the averages that raise the possibility that the Oct/Nov rally has run its course. At this juncture we are merely looking at this potentially deeper pullback as a correction of the recent surge and not a resumption of the bear market. The cause for concern short term is coming from the S&P Mid-Cap 400 as it has slipped back below its 20/50 day ema during today's trade. It is the first of the averages to do so but the S&P Small-Cap 600 has tested similar levels with the S&P 500 not far behind.
The chart below shows relative performance of the five major averages over the last several years. Interestingly, it is the S&P Small-Cap (green line) and the S&P Mid-Cap indices (black line) that have outperformed most of this year. Is it time to play catch-up for the Small- and Mid-Caps? Perhaps not, but the fact that these are the first indices to take out/test the moving averages does once again illustrate the lack of leadership that has plagued the market during recovery attempts most of this year (see 12:41 Lost Leadership Story).
-- Jim Schroeder, Briefing.com
1:44PM Relative Strength -- SanDisk (SNDK) 20.20 -0.06: Shares of SanDisk have returned 30.5% since we reviewed them favorably back on July 18th. By way of comparison, the S&P 500 is roughly 2.4% higher over the same time frame, while the Nasdaq has returned about 1.5%. So while the fourteen-week, 30% return is solid on a stand-alone basis, it's also worth noting that SanDisk shares have outperformed on a relative basis as well.
We were favorable on the company back in July based largely on the notion that flash memory demand appeared to be ramping. As it turns out, the company's solid third quarter results, released October 16th, supported our contention. Earnings rose 23% sequentially to $0.16 per share, exceeding the consensus estimate by seven cents. At the same time, third quarter revenues rose 10.5% sequentially to $141.1 million, also comfortably ahead of the consensus estimate for $127.1 million in sales. Gross margins of 38.5% benefited from a stable pricing environment with ASP's (average selling price) rising 1-2% during the quarter.
In terms of what the company does, SanDisk operates in the flash memory market which is largely viewed -- and correctly so -- as a cyclical business. Put another way, SanDisk's business isn't expected to grow in a straight line as you might expect say from a restaurant. Rather, its business 'cycles' through peaks and troughs that, as a rule, span several years.
So what is flash memory? It's a storage chip that, unlike standard memory, doesn't require constant power to store data. Common applications include digital cameras, portable CD players and cellular phones -- the product cycles for these and other products contribute to the length and depth of SanDisk's business cycle. Fortunately for SanDisk, the length of the product cycles with which the company has to contend is relatively short.
Now from a fundamental perspective, the shares currently trade at 34.5x estimates for fiscal 2003 (i.e. projecting forward 15 months). For comparative purposes, the shares have a five-year average 'high' P/E multiple of 67.2x and five-year average 'low' P/E multiple of 11.3x. So SanDisk has moved towards the expensive side absent additional upside surprises on earnings. While we believe those upside 'surprises' have a decent shot at materializing -- in fact it looks like the market is more or less expecting them -- we would shy away from adding aggressively at current levels. -- Mike Ashbaugh, Briefing.com
1:42PM Qualcomm (QCOM) 35.10 +0.16: This morning shares popped 3.4% to an intra-day high of $36.16 in reaction to strong Q402 earnings of $0.31, $0.04 better than Multex consensus and upside Q103 guidance of $0.35-0.38 vs. consensus of $0.29. Shares, however, have lost most of their steam in first two hours of trading due to valuation concerns sounded by analysts, including Banc of America, Thomas Weisel, UBS Warburg, etc. Banc of America maintains Mkt Perform; thinks QCOM's strength stands out in current weak tech environment, but given carrier health issues and valuation, prefers to stay on sidelines pending signs of sell-through. Thomas Weisel acknowledges company's strongest in group fundamentals, but suggests to get more constructive if stock gets below $30. UBS Warburg thinks Q1 guidance is aggressive; finds shares to be fairly valued. Shares have pulled off of session's worst levels, are +0.5%.
10:09AM Kopin (KOPN) 4.71 +0.12: In morning note, Adams Harkness initiated with a Buy rating and price target of $7. Firm notes that, by establishing itself as a technological innovator, KOPN has become the leading supplier of AlGaAs and InGaP HBT wafers for wireless handset market and controls roughly 30% market share; by leveraging its wafer engineering expertise, company's CyberDisplay products have been able to penetrate the high-growth consumer electronic market with its miniature flat panel active matrix liquid crystal display. Firm thinks KOPN deserves a market-leading valuation for its CyberDisplay and CyberLite businesses similar to RF Micro Devices for its III-V business and Cree.
9:38AM Technical Levels : When we reviewed the Nasdaq yesterday, we were looking for the index to consolidate. More specifically, we were looking for a pullback in the index that could be viewed -- from a longer-term perspective -- as consolidation within the context of a broader move higher. Well as it turns out, the index did indeed 'consolidate' yesterday. In fact, it got hit for a relatively sizeable one-day, 42-point loss. By the end of the session, the index had closed towards its lows of the session at 1,377, which was in the ballpark of our support point at 1,380.
Now total volume traded wasn't especially heavy on the Nasdaq, coming in just over the 1.5 billion share mark. Yet at the same time, market internals registered a solidly bearish read for the session. Declining volume outpaced advancing volume by a margin of over 5 to 1 -- that's not an absolutely extreme ratio, but solid nonetheless.
All in all, the price action yesterday wasn't great for the market bulls. While one day doesn't really alter the longer-term technical outlook -- the bias here remains higher -- it does put us on notice that the potential support points might need to be viewed from a broader standpoint.
All of which brings us to the issue of what these potential support points might be. From current levels, the first -- and probably the most obvious -- candidate is the support point we identified yesterday at 1,360. This represents the bottom of the gap created on November 4th, which was the somewhat surprising Monday rally. That's followed by subsequent support at 1,347 which matches up with chart congestion and also approximates a Fibonacci retracement.
Now if those two support points would fail to hold, that's where this broader view is going to help. At that point it's probably time to start looking towards the Nasdaq's 20-day exponential moving average which currently rests at 1,327. After that, you have the index' 100-day simple moving average at 1,309 and congestion around the 1,300 level which also happens to approximate a 62% retracement of the prior leg higher. So as it stands now, the broad range of 1,300 to 1,327 looks like a relatively solid floor for the time being.
Now to the upside, we'll call initial resistance at our former support point in the range of 1,380 to 1,382. That area is followed by more significant overhead in the range of broader congestion at 1,394 to 1,401. If the Nasdaq should successfully navigate those two levels, watch for that infamous resistance in the range of 1,419 to 1,423. This area has been reasonably well documented as it brackets the September 11th-induced reaction lows that bottomed at 1,423, as well as the reaction lows of October 1998 which bottomed at 1,419. -- Mike Ashbaugh, Briefing.com
9:36AM O2Micro (OIIM) 11.24 +0.26: Stock trading up, as before open, Adams Harkness initiated with a Buy rating and price target of $19 on this supplier of high-performance analog and mixed-signal integrated circuits for power management applications. Firm thinks revenue growth will be driven more by increased market penetration of OIIM's ICs than by growth of markets themselves; however, says certain segments (LCD monitors) should experience robust growth over several years.
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