From Briefing.com: 4:07PM Weekly Wrap: Powered by gains in the technology, financial and automobile stocks, the blue chip indices extended their weekly winning streak to seven. Indices also pushed to their highest levels since late summer and are now within striking distance of their 200-day moving averages - ceilings that haven't been approached in over half a year.
Would like to be able to point to material changes in underlying fundamentals to explain the advance, but we can't. Move continues to be driven by improving sentiment, gradual rotation out of bonds into stocks, strong momentum and just enough encouraging economic/earnings data to keep the ball rolling.
On the earnings front investors had to be pleased with the steady flow of as expected or better than expected numbers out of the retail sector. News allayed concerns that consumer had moved into hibernation for the winter. Avoidance of negative surprise out of Hewlett-Packard also created a sense of relief. Again, not sure how far market can travel on mere avoidance of negative shocks, but for now the bulls are firmly in control.
Economic signals this week were more mixed as housing data were much softer than expected. Cold weather and volatility of data allowed market to brush off the soft number. Meanwhile, traders were very encouraged by the drop in claims as it painted a brighter employment outlook. Not enough here to say economy is off to the races, but certainly there's been nothing in the data that points to a double-dip.
Seems like as long as market can avoid any real negative shocks, positive momentum, steadily improving sentiment and favorable seasonals will be enough to keep the rally alive. Cyclicals, technology, financial and retail stocks should continue to pace the advance, while more defensive groups like food, beverages, restaurants, tobacco, health care and defense suffer from rotation.
3:55PM Wachovia on Wireless : Based on snapshot survey, firm thinks U.S., Canadian, and U.K. handset sales are slightly better than in Y01, but not appreciably so; thinks investors should take profits on stocks with high-risk betas like RF Micro Devices (RFMD), Skyworks (SWKS ), TriQuint Semiconductor (TQNT), Anadigics (ANAD)and Ericsson (ERICY); downgrades RFMD, SWKS and TQNT to HOLD from Buy and ANAD and ERICY to SELL from Hold; suggests investors with long-term outlook invest in large-cap lower-beta names like Buy-rated Nokia (NOK) and Strong Buy-rated Qualcomm (QCOM).
3:54PM Autodesk (ADSK) 15.00 -0.21: Shares have had a rocky day following last night's upside Q302 results of $0.05, better than Multex consensus of $0.04, but accompanied by Q402 warning of approximately $0.05 vs. Multex consensus of $0.13. Although company is getting a vote of confidence from USB Piper Jaffray, who upgrades to OUTPERFORM from Market Perform in anticipation of AutoCAD, most analysts are more paced in their commentary. While CSFB thinks competitive position remains strong, believes investors should exercise valuation discipline in choosing entry point, with optimal risk/reward in $11-12 range. Salomon Smth Brny thinks disappointing guidance reflects numerous factors, including increased conservatism in outlook, discreet product launch delays now scheduled to hit in Q104, purchase deferrals ahead of coming AutoCAD upgrade, and weak demand climate; thinks coming AutoCAD upgrade sustains Neutral rating, but is not deserving of rating change.
3:50PM Microsoft (MSFT) 58.00 +0.16: In morning note, Investec initiated with a Hold rating and price target of $67, as combination of the mature PC revenue stream and the new initiatives leads firm to expect modest revenue and earnings growth. Firm notes that MSFT's growth is challenged by the maturing of its core markets, particularly the PC; company's Business Solutions group is aggressively pursuing new opportunities in the enterprise (such as CRM, supply chain, ERP, and human resources opportunities) which leads to justified concern for many leading enterprise software vendors; also MSFT is aggressively pursuing new growth outside of core software markets by targeting consumer entertainment through Xbox and MSN.
2:55PM Marvell (MRVL) 23.19 -1.14: Weakness in tech sector is not helping company, which is 4.7% down despite last night's upside Q301 results of $0.14, $0.01 better than Multex consensus of $0.13. Investors' nervousness regarding shares can be explained by mixed analysts' reactions to MRVL's earnings. Salomon Smth Brny remains concerned about company's gross margins and HDD chip trends; maintains Underperform rating. On the other hand, Goldman Sachs reiterates Outperform rating based on solid business momentum, still conservative guidance, and MRVL trading in-line with comm IC peers despite having the best fundamentals. Merrill Lynch reiterates Neutral rating, thinks most of positive news is already discounted in stock's price.
2:05PM Thanksgiving Thoughts : It won't be long now before we're cooking turkeys, eating to excess, and napping like there are plenty of tomorrows. That's right, Thanksgiving is right around the corner, and as far as the stock market is concerned, that has normally meant good things.
With a little help (okay, a lot) from the trusty Stock Trader's Almanac, we can gain some perspective on the performance of the Dow Jones Industrial Average from the time Truman was pardoning turkeys at the White House. All in all, the performance can be characterized as positive. Dating back to 1952, and looking at the Wednesday and Friday sessions that bracket Thanksgiving Day, the Dow recorded a net gain in all but two years (1964 and 1965) leading up to 1987.
Since 1987, however, the track record hasn't been nearly as inspiring. As the Stock Trader's Almanac notes, publishing the Dow's impressive track record in its 1987 edition proved to be the kiss of death. To wit, the Dow has recorded a net gain in those two sessions in only 8 of the last 15 years. Last year, the Dow staged a 125 point rally in Friday's session to end with a net gain of 58.33 points.
Before dismissing the Thanksgiving bias altogether, though, the Stock Trader's Almanac also points out that staying in through the following Monday improved the record immensely. In fact, beginning with 1987, the Dow has recorded a net gain in all but three years (1987, 1996 and 1999) when Monday's session is included in the tabulation.
Obviously, past success is no guarantee of future results, but the Thanksgiving trend is certainly worth noting. Keep in mind, too, that Thanksgiving comes late this year (Nov. 28) and that the month of December will be hot on its heels. For what it's worth, the Stock Trader's Almanac also reminds readers of those sectors/indexes that typically exhibit a bullish bias in December. They include: biotech (BTK), computer technology (XCI), Nasdaq 100 (NDX), Nasdaq Composite, Russell 2000, Securities Broker/Dealer (XBD), and Wilshire Smallcap (WSX).-- Patrick J. O'Hare, Briefing.com
1:35PM Debating Buy and Hold : Early next month, the Nasdaq will announce its annual restructuring of the Nasdaq 100 index. This restructuring will once again see a number of old tech standards unceremoniously tossed aside, and will leave even more walking wounded. There is a lesson in this: it is generally unwise to buy and hold a certain category of technology stocks.
Warren Buffett likes to talk about a company's "moat" around its castle, with a key element of that moat being the company's brand name. A strong brand name helps defend a company against competition. For Coke (KO), if forced to give up its secret formula or its brand, there's no contest - dump the formula and keep the brand. But in the technology world, brand doesn't count for much.
It can be argued that many consumer brand names carry weight, but the same cannot be said for tech firms selling to businesses, where brand is less important and the latest technological innovation is more critical. Brands can be defended for decades by capable management, a technological edge typically cannot.
As a result, we tend to see tremendous upward and downward mobility in business technology firms from one year to the next. Of the current Nasdaq 100 companies, we count 26 that are not in the top 100 by market cap, with 14 of those tech firms. All 14 are business-oriented tech firms. Not coincidentally, consumer tech firms (or firms with at least some consumer exposure) in the Nasdaq 100 are holding up much better in the downturn: AAPL, DELL, ERTS, MSFT, INTC, INTU, SYMC.
There is much debate regarding the practice of buy and hold investing, but this debate wrongly assumes that investors must either completely accept or reject buy and hold. This is foolish. It's pretty tough to argue that buy and hold hasn't work for Warren Buffett and his Berkshire investors. And it's just as tough to argue that buy and hold has worked for most tech investors. Buy and hold is a useful strategy when employed wisely. It is not useful when investing in business-oriented technology firms, where vigilance and a thorough knowledge of technology are the critical investing skills. - Greg Jones, Briefing.com
1:47PM Brocade (BRCD) 5.34 -1.94: Although analysts were largely expecting BRCD's Q402 earnings to be in-line with Multex consensus estimate of $0.07, decreased Q103 warning and news of President and COO, Michael Byrd, stepping down are having a detrimental effect on shares (26.7% down) and have put pressure on the Nasdaq. Company has been bombarded by downgrades from multiple brokerages, including Lehman Brothers, Bear Stearns, Salomon Smth Brny, JP Morgan, etc. Analysts are disappointed by bleak outlook, think OEM inventories of high-end SilkWorm 12000 product must be cleared, expect profitability to remain challenging and are concerned about weakness being company-specific since most other storage vendors expect modest sequential improvement at year end.
12:55PM Novellus hosts mid-qtr update Tuesday (NVLS) 34.84 -1.05: -- Update -- Stock trading off 3% on the session, compared to intraday losses of -1.0% for AMAT and 1.05% for KLAC. Hearing that relative weakness is due to speculation that co's mid-qtr update could disappoint. The update is scheduled for after the close Tuesday.
12:51PM Oracle (ORCL) 11.42 -0.04: With company's Q203 entering the homestretch, Soundview Technology's checks continue to be positive with respect to visibility, deal sizes, and number of deals, with all major units looking to be either on or close to plan; further insights into recent organizational changes increase firm's comfort in Q2 estimates of $0.09 per share, $0.01 above Multex consensus. Firm expects company to swing back to positive growth in Q3; maintains Outperform rating and price target of $13. Shares are under pressure (0.4% down) due to weakness in Nasdaq.
10:04AM Sector Watch: Semiconductor : -- Technical -- Despite early pressure on the index (SOX at 362 -0.7%), the pullback off of the resistance highlighted yesterday (365/367) has been minimal thus far with the pattern corrective. Posture above 357 during the current dip leaves the index positioned for another run at this barrier. If a break is seen, the next resistance of interest comes into play in the 373/375 area. Next support on a failure is at 353.
9:54AM Technical Levels : So when we reviewed the Nasdaq yesterday, we were more or less expecting that big closing break of resistance at 1,423. In fact, by yesterday, everybody and their grandmother were more or less expecting it. Nonetheless, this important technical break did manifest itself in impressive form. Total volume traded was much stronger than average at more than 2.4 billion total shares, while the market internals were approaching bullish extremes -- advancing volume outpaced declining volume by better than 8 to 1.
So the price action matched up well with what we were looking for in our November 18th review. Once a clean closing break of an important level looks certain, the volume picks up and you frequently end up with a sizeable one-day that closes at its highs -- exactly as the markets experienced yesterday. Again, while we've favored a bullish bias in this column since October 10th, many professionals just turned bullish yesterday with the follow through the markets just experienced.
Just two random points of interest that we may or may not address in detail later -- 1) note that the Nasdaq closed yesterday at 1467.56, just two hundredths of a point from the upper end of its 10-day Bollinger bands at 1467.58, and 2) more importantly, note that the Nasdaq is now set for its second consecutive clean close of its 20-week exponential moving average for the first time since January. Both of these are bullish intermediate-term signals.
So when we reviewed the Nasdaq on November 14th -- with the index at 1,361 -- we were taking a broader view of the markets. The general thought in that piece is worth revisiting today. Again 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.
Now before we get too far with this weekly chart, we'll just reiterate that our intermediate-term target remains in the range of 1,500 to 1,520. This area encompasses three different notable technical levels: 1) it approximates a swing target off the Nasdaq's recent consolidation, 2) it matches up with a 50% retracement of the index' March to October sell wave and 3) it also happens to bracket the Nasdaq's 200-day simple moving average at 1,504.
Yet going back to the weekly chart shown above, there are a few interesting points there as well. Without making things complicated, you can see the importance of that former resistance we had been watching in the range of 1,419 to 1,423. Now a second obvious take away is that over the past 20 months, that range between 1,423 and 1,613 is reasonably vacant. As we pointed to previously, this is arguably the fundamental difference between the market's perception of 'ongoing recession' and 'potential recovery'.
So we just want to lock away that resistance in the range of 1,613 and 1,620 will be an important level worth watching on a longer-term basis. It represents obvious straight-line resistance and also matches up with a 62% retracement of the Nasdaq's March to October sell wave.
But what about the very near-term bias? Those that have followed along here know that the Nasdaq edging up on the upper end of its 10-day Bollinger bands suggests consolidation may be in order. So while yesterday's break was exciting -- and the volume was definitely impressive -- we're more or less back to a consolidative bias within the context of a broader leg higher. This suggests the active trader will want to be watching the technical levels.
For the time being, look for initial support in the range of our former resistance at 1,448 to 1,452. That's followed by relatively modest support points at 1,440 and 1,430 and then again by the infamous floor at 1,423. Also keep in mind this area is relatively new ground as the Nasdaq hasn't closed above 1,423 since July 5th. So we'll see if any additional levels start to pop.
To the upside, Nasdaq 1,473 looks like a candidate for minor resistance followed by another level in the range of congestion at 1,490 to 1,494. Of course, the real level we'll be looking towards is that 1,500 to 1,520 range although again some consolidation is likely needed to get there. We've discussed the favorable volume as the markets move higher -- that is the stronger volume on up days relative to down days. Also note that the markets appear to be ignoring adverse news for the most part -- climbing a wall of worry if you will. Those continue to be the earmarks of a 'legitimate' rally, and with the way the charts are shaping up we continue to favor a near-term bias to the upside. -- Mike Ashbaugh, Briefing.com
9:16AM XLNX, LSCC cut to Buy at Needham on valuation:
8:38AM US to investigate S. Korea DRAM subsidies : Reuters and other newswires reporting that the S. Korean government acknowledged last night that the US will launch an investigation into Micron's (MU) complaint that the S. Korean government subsidized DRAM makers Hynix and Samsung; Micron is seeking countervailing duties on DRAM imports.
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