From Briefing.com: Updated: 21-Nov-02 General Commentary - All in all, Wednesday wasn't a bad session for market bulls. The Nasdaq added 45 points which amounts to a one-day, 3.3% advance. Total volume traded was well above average at 1.75 billion total shares while the market internals were solidly bullish -- by the end of the session, advancing volume outpaced declining volume by almost 8 to 1.
So with Wednesday's close at 1,419, it should be relatively clear that the index is once again at its fourth recent test of straight-line resistance in the range of 1,419 to 1,423. We've been laser focused on this level as it coincides with three points of interest over the prior five years -- 1) the September 11th-induced reaction lows which bottomed at 1,423, 2) the reaction lows of October 1998 which bottomed at 1,419 and 3) the ordinary course of its original uptrend during the Summer of 1997. Now keep in mind that in the context of the current leg higher, we first targeted the 1,423 level as far back as October 17th or slightly more than one month ago.
While this important test appears to be upon us now, also note that the straight-line resistance at 1,423 ties into a separate interesting aspect of the present technical picture -- namely, the way its chart is taking shape. The Nasdaq now appears to be in the handle of what should soon become a crude cup-and-handle formation. The cup component to this pattern begins back in mid-August and runs through early November. The sides of the cup are at index levels in the very tight range of 1,419 to 1,423, while the base of the cup ranges from 1,108 to about 1,250.
Now the cup-and-handle often signifies the formation of a technical base from which a subsequent move higher can be made. While the current picture looks reasonably favorable as it is, those with a more cautious approach may want to watch for a close over the 1,423 level before going aggressively long. While a close over the 1,423 level would signify a clean break of key resistance, it's also worth noting that it would also represent the Nasdaq's best close since July 5th.
If the cup and handle pattern does materialize, the handle will be signified by the pullback from 1,419 to approximately 1,319. That more recent 'higher low' of 1,319 indicates buy interest is presently exceeding sell pressure. Also note that when we reviewed the Nasdaq on Tuesday, November 12th -- at the bottom of that cup with the index at 1,319 -- our technical view was that we were looking for the markets to turn higher.
So where does all this leave us? Well, Hewlett-Packard has received a warm reception to its third quarter report issued after hours. HPQ was up as much as 9% versus the close which should set the stage for a favorable bias in the early going Thursday. This means the Nasdaq should be poised to follow through with additional upside following its recent consolidation.
For the time being just keep in mind that the Nasdaq is now dangerously close to that closing break of 1,423. Assuming that break occurs, the immediate bias is higher and the subsequent move could be relatively notable -- our intermediate-term target would fall in the range of 1,500 to 1,520 which also happens to bracket the Nasdaq's 200-day simple moving average at 1,505. Mike Ashbaugh
6:40PM Hewlett-Packard winning against Sun Microsystems (HPQ) 16.85 +0.30: -- Update -- On call, says its win rates against Sun Microsystems (SUNW) continue to accelerate... separately, HP says it is targeting areas with lower prices where it feels its competitive position is out of whack, but it is not engaging in a program of across-the-board price cutting... call just concluded
6:05PM Hewlett-Packard thinks X-mas selling season to mirror back-to-school season (HPQ) 16.85 +0.30: -- Update -- On call, says it believes the Christmas selling season will be very much like the back-to-school selling season in that there should be some seasonal uptick, but altogether, HPQ is planning for a selling season that is about 1/3 below normal
6:01PM Hewlett-Packard sees higher pension expense in FY03 (HPQ) 16.85 +0.30: -- Update -- On call, says pension expense will be materially higher in FY03 versus FY02 due, among other things, to changes in actuarial assumptions... for Q1 (Jan), says pension and retiree medical costs will result in a $90 mln incremental increase in expenses versus Q4 levels
5:45PM After Hours Wednesday : The market has been able to extend the strong bullish bias noted during the day in after hours action. The S&P futures, currently at 918.5 is trading 4.5 points above fair value, the Nasdaq 100 futures, currently at 1082 is trading 10 points above fair value while the Nasdaq 100 AHI is up 9.03 points.
Triggering the strong, broad based move to the upside is the earnings report from Hewlett-Packard (HPQ +9.2%). The company topped the EPS consensus by $0.02 and also beat the revenue projection ($18 bln vs $17.3 bln consensus); cited cost cuts and strong sales of printing and imaging equipment. Company said is comfortable with Q1 consensus of $0.27 in EPS and $18.4 bln in revenue but is not seeing any meaningful improvement in IT spending or capital spending and is not counting on a strong holiday buying season.
Also responding well to its earnings report is OmniVision (OVTI +10.1%). The semiconductor imaging device maker beat on both the top ($21.7 mln vs $18.4 mln consensus) and bottom line ($0.09 vs $0.07 consensus). For Q3 now projects EPS of $0.09 to $0.11 ($0.08 consensus) on revenues of $21 mln to $23 mln (consensus $20.2 mln).
5:16PM Hewlett-Packard doesn't see improvement in IT spending (HPQ) 16.85 +0.30: -- Update -- On call, says it doesn't see any meaningful improvement in IT spending or capital spending.... adds that it is not counting on a strong holiday buying season.... notes that it will spend most of time on today's call discussing Q4 (Oct) performance and that it will use its analyst meeting Dec. 3-4 to discuss its outlook, and industry outlook, in more detail.
4:46PM Hewlett-Packard resumes trading (HPQ) 16.85 +0.30: -- Update -- HPQ +1.53 or 9.1% vs the 4 pm ET close to 18.38.
4:15PM OmniVision tops estimates (OVTI) 12.48 -0.09: Reports Q2 (Oct) earnings of $0.09 per share, $0.02 better than the Multex consensus of $0.07; revenues rose 77.2% year/year to $21.7 mln vs the $18.4 mln consensus; note that earnings exclude a benefit from the sale of previously written-off product, including that benefit earnings would have been $0.12 per share -- $0.09 per share is the more conservative view versus consensus; currently expects to report Q3 earnings in a range of $0.09 to $0.11 per diluted share, on revenues of $21 million to $23 million -- Multex consensus estimates are $0.08 per share and $20.2 million respectively.
Close Dow +148.23 at 8623.01, S&P +17.41 at 914.15, Nasdaq +44.84 at 1419.35: An impressive performance from the opening bell for the tech dominated Nasdaq Composite. The key semiconductor sector benefited from a pre-market comment from the Street in which price targets were raised for several semi equipment stocks. The index pushed steadily higher throughout the session and while there was a period of profit taking in late action, the pullback was short lived with the index finishing at its best level of the day. A pre-market call that raises targets is not typically enough to drive prices sharply higher (SOX +8.2%). However, given the fact that the Nasdaq Comp had declined roughly 4% over the previous two sessions, within the context of a larger term uptrend, market participants put cash back to work once the rally got rolling for fear of missing out on the next leg higher. By the close the Nasdaq Composite was a mere six points from its recovery high. The larger cap Dow and S&P 500 did not bolt out of the starting gate, failed to match the Nasdaq in percentage terms and remain 2% and 1.3%, respectively below their recovery highs but they also put together a stellar performance. Today's action reflects a bullish underlying mind set as there is more fear of missing the move than stepping in on the buy side despite the aggressive advance off the Oct low. Even if strong follow through does not develop in the wake of a negative surprise on the data front tomorrow (market ignored weaker Housing Starts today), this mind set bodes well for the intermediate term. There was little of interest on the downside today except for airline, gold and home improvement retailers. Volume was heavy with market internals firmly bullish throughout.DOT +4.4%, Nasdaq 100 +4.3%, SOX +8.2%, XOI +1.3%, NYSE Adv/Dec 2247/1006, Nasdaq Adv/Dec 2277/1042
2:55PM Novellus (NVLS) 33.95 +2.09: Soundview Technology increases price target to $38 from $31 as company continues to look well-positioned to benefit from shift to copper due to dominant share in electrofill, momentum on PVD front for barrier/seed deposition and new market potential in areas such as CMP; thinks Outperform-rated NVLS stands as most formidable competitor to Applied Materials (00C0) heading into next upturn; although pullback after recent run-up of semis is possible, believes investors looking to build substantial positions would be well served to accumulate appropriately. Shares are 6.6% up on bullish note.
2:45PM Nasdaq clears resistance at 1,411 : -- Technical -- Index has cleared resistance at 1,411. To the upside, the Nasdaq is now situated for a key test of very important overhead at 1,419 to 1,423. This is a level that 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. From current levels, watch for initial support now at 1,411 -- that level is followed by subsequent support in the range of 1,394 to 1,401.
2:34PM Relative Strength -- Microchip Technology (MCHP) 27.74 +1.98: Shares of Microchip Technology have returned 56.5% since we reviewed them favorably back on September 17th. By way of comparison, the S&P 500 is roughly 2.6% higher over the same time frame, while the Nasdaq has returned about 9.2%. So while a two-month, 56% return is strong on a stand-alone basis, it's also worth noting that Microchip Technology shares have outperformed on a relative basis.
When we initially reviewed Microchip, we were favorable on its near-term prospects based largely on management's promising second quarter outlook. Since then, the company followed through by matching its second quarter guidance. Yet just as importantly, management stated is was seeing strength across all product lines -- Microcontrollers, Analog and Serial EEPROM (Electronically Erasable Programmable Read Only Memory chips) -- and expects continued sequential revenue growth in the December quarter as well as the remainder of the fiscal year. According to the company, its growth expectations are due mainly to market share growth driven by new design activity in its proprietary product lines.
So what do you do with a stock that's up 56% yet continues to take a favorable view of its forward outlook? Well, this is a situation where a technical approach to Microchip is probably worth considering. Conventional wisdom suggests you let your winners run, and the technical approach provides a measure of guidance as to potential exit and entry points.
In the chart above, you can see the shares have cleared straight-line resistance earlier today in the area of 27.23. This is a decidedly bullish near-term development. So now, that former straight-line resistance at 27.23 will pivot to become straight-line support. Also note that Microchip has significant subsequent support in the range of 25.30 to 25.40 which brackets its 20-day exponential moving average as well as its 200-day simple moving average.
This leads us to the question of potential resistance. With the shares hitting new four-month highs, a broader view of Microchip's chart is worth a quick look. So this second chart is simply a broader view of the previous one. It takes the 'daily' time frame and changes it to a 'weekly' time frame for the purpose of getting a better look at the longer-term technical outlook.
Without making things complicated, you can see that we've isolated potential sticking points identified in the chart as straight-line resistance. Broadly speaking, we continue to favor a bias to the upside based on today's price action, which makes 28.75 the first target resistance. As a word of caution, however, note that we would become more cautious on the near-term outlook on any closing break of its 200-day simple moving average. -- Mike Ashbaugh, Briefing.com
12:57PM Applied Micro looking to acquire? (AMCC) 3.90 +0.11: Optical networking news site Light Reading running an article about the possibility that AMCC might look to acquire another company with its $1 bln cash hoard, PMCS and VTSS are mentioned as possible targets, though it should be noted that this is just speculation based on AMCC's cash position, rather than actual reports of talks between any of these companies.
12:27PM SanDisk tests $23.40 one-yr high set April 17 (SNDK) 23.32 +1.50: Stock experiencing a minor pullback after initial test of the level (intraday high $23.40).
10:03AM Texas Instruments may face competition from STM with Nokia biz (TXN) 17.37 +0.19: We are hearing trader talk that CE Unterberg said in a morning note that STM may become NOK's second source supplier for their digital base band biz; firm sees this as negative for TXN, since the co is currently NOK's sole supplier in this area.
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