Briefing.com - Updated: 27-Nov-02 - General Commentary - Whether it was concern over lofty valuations (highlighted on this page yesterday), overhead resistance or simple profit-taking ahead of the holiday weekend, the Nasdaq suffered one of its biggest point drops in recent weeks on Tuesday. Index started lower from the opening bell and never found any buying interest all the way into the close. Lack of buyers on the early dip a bit unusual these days. Nevertheless, it was a relatively modest (-2.5%) decline and it occurred in orderly fashion.
In other words, investors shouldn't make much of the action as it appears - at this point anyway - to be nothing more than normal corrective behavior. However, Briefing.com senses a battle brewing between those investors that think the tech sector has run well ahead of its fundamentals and is due for another painful dose of reality; and those that see the strong momentum, improved operating efficiencies, brighter technical picture and more favorable economic backdrop as ingredients for a sustained advance.
Those of you who have read this page over the past several weeks know that Briefing.com falls somewhere in between those two extremes. While we think the market/sector has indeed run ahead of its fundamentals and is due for a pullback, we don't think the downside risk is severe. Could we trade back down toward the middle or lower-end of the recent trading range? Sure. But at this point we see enough improvement in corporate structure and economic backdrop to argue against the Nasdaq moving to new lows.
So what we have is a traders market in which investors should be looking to reduce exposure to tech when Nasdaq approaches the 1500 area and increase exposure to the sector on dips back to the 1300-1250 range.
Robert Walberg
6:19PM Tuesday After Hours price changes vs 4pm ET levels: The tech sector didn't have the best of days in the regular session, but if things stay the way they are now, the tech sector should, at least, start tomorrow's session on an upbeat note as the Nasdaq 100 futures, at 1094, are six points above fair value. Separately, the S&P futures, at 913, are in line with fair value.
The positive slant in the Nasdaq 100 futures can be attributed to the guidance provided by a couple of well-known technology companies after the close, namely Novellus Systems (NVLS 35.28 +0.80) and Sun Microsystems (SUNW 3.82 +0.06). Each company held its mid-quarter update, and in both cases, reassured investors that things hadn't deteriorated since they last provided guidance for the current quarter.
For NVLS, in fact, things seem to have gotten a bit better. Although management stuck by its original EPS and revenue forecasts for Q4 (Dec) of $211 mln and $0.11, respectively, there was an improvement in the company's net bookings guidance. Specifically, NVLS said net bookings would be $200 mln, but that there was 5% upside potential from that level. Following its Q3 call, NVLS projected bookings of $200 mln with a caveat that they could be 10% lower.
SUNW, meanwhile, said it expects fiscal Q2 (Dec) revenue to be in line with the current consensus estimate of $2.92 bln. Management didn't comment on EPS expectations, but it did concede Q2 gross margins will come in slightly below Q1 levels due to the continuing competitive pricing environment.
5:13PM Novellus going to look at SFAM impact again (NVLS) 34.48 -1.77: -- Update -- Analyst points out on call that math of $0.04 per share negative impact from Speedfam-IPEC acquisition doesn't compute since NVLS is only issuing 6 mln shares out of a base of 150 mln shares... contends that impact should be smaller... NVLS concedes that it thinks analyst is right and that it may have to go back and re-work the math... call just concluded... NVLS +0.97 at 35.45
5:05PM Novellus clarifies improved bookings guidance (NVLS) 34.48 -1.77: -- Update -- In response to analyst question, says it thinks improved Q4 bookings guidance has to do with an increase in demand rather than market share increases... separately, says there is a shortage of advanced technology capacity, particularly in the area of copper... NVLS +0.82 at 35.30
4:52PM Novellus thinks bottom probably in place (NVLS) 34.48 -1.77: -- Update -- In response to analyst question about Q1 (Mar) visibility, CEO said he isn't going to comment on Q1 right now, but he does believe "we are probably at a bottom"... notes that, at these levels, the safe bet is that things stay flat... NVLS +0.94 at 35.42
4:47PM Novellus provides Q4 EPS guidance (NVLS) 34.48 -1.77: -- Update -- On mid-qtr update, still expects total revenues to be $211 mln; notes shipments should be $185 mln or slightly higher... still anticipates Q4 (Dec) EPS of $0.11, which excludes a $1.7 mln restructuring charge for workforce reduction this qtr... including charge, pegs EPS at $0.09.... when accounting for Speedfam-IPEC acquisition (to close on Dec. 6), says it expects a $0.04 per share negative impact that would result in Q4 EPS of $0.07 excluding restructuring charge and $0.05 per share including charge... NVLS +1.17 at 35.65
4:42PM Novellus provides improved bookings guidance (NVLS) 34.48 -1.77: -- Update -- On mid-qtr update, says net bookings for Q4 (Dec) are now expected to be $200 mln to possibly $210 mln... this is improved from Q3 conference call when it said Q4 bookings would be $200 mln or could be 10% lower
9:27AM Novellus sees improved demand: Fechtor (NVLS) 36.25: Research firm Fechtor Detwiler reportedly saying that NVLS has seen increased demand for its surface preparation tools during the first half of the quarter; Fechtor believes this is indicative of better than expected shipments in Q4 and bookings in Q1, but sees this as NVLS-specific rather than an industry recovery.
4:05PM TriQuint Semi updates Q4 and Q1 guidance (TQNT) 7.04 -0.13: Reaffirms Q4 forecast of $0.00-($0.01) in EPS and $71-$75 mln, vs consensus of breakeven and $73.2 mln; regarding Q1, co states that after excluding the Agere business, rev would be down by about 10% sequentially and expects a loss of $0.08 due to the added costs from the Agere acquisition.
2:54PM Nasdaq Composite intraday levels : -- Technical -- Failed at early resistance (see 10:05 comment) and has remained on the defensive with support in the 1450 area -- identified here this morning -- recently probed. Without a push back through intraday barriers 1455 and more important 1459/1461, the index is expected to remain vulnerable. Next support is at 1440/1438 with no damage done as long as the breakout area (1425/1420) is not breached.
11:50AM MU reaffirms 2003 capex -- Dow Jones cited:
10:57AM Sector Watch: Semiconductor : Sector slips slowly lower (SOX at 362 -3.1%) but holding near support in the 360 area thus far. Pressuring the SOX today are: MU -6%, ALTR -5.5%, TER -4%, LLTC -4.6%, MXIM -3.2%, NVLS -3.5%, AMAT -2% and LSI -2.7%. Short term need to see follow through upticks beyond resistance at 365 to neutralize the recent weaker bias. Failure suggest potential for further downticks with next supports at 355 and 351. A similar resistance for the semi HOLDRS is at 28.8/28.9.
8:50AM Skyworks estimates and target raised at Soundview (SWKS) 11.52: Soundview raises Q4 and FY03 ests based on stronger sales of CDMA components; while handset sell-through is still yet to be determined, firm believes that the ramp of new handsets with SWKS silicon will cause Q1 to experience less seasonality than prior years; raises price target to $12 from $10, but maintains Neutral rating due to valuation.
8:32AM Actel cut to Buy at Needham on valuation; target $26 (ACTL) 21.28:
7:46AM Intel estimates and target raised at Morgan Stanley (INTC) 20.48: Morgan Stanley raises INTC's Q4 est to $0.14 from $0.12 ($0.01 above consensus) and raises price target to $25 from $22; channel checks suggest that PC-based supply chain demand is exceeding expectations, and firm expects co to suggest at their Dec 5 mid-qtr update that revs will at least be at the upper end of their $6.5-$6.9 bln guidance, with potential for the range to be increased by $100-$200 mln.
9:54AM Technical Levels : So when we reviewed the Nasdaq yesterday, we continued to favor a near-term bias towards additional upside. As it turns out, the index put together a respectable one-day gain of 13 points. Yet once again, it was the manner in which the gains were achieved that was worthy of note. Total volume traded was much stronger than average at more than 1.9 billion total shares, while the market internals were comfortably bullish -- advancing volume outpaced declining volume by better than 3 to 1.
Again, it's worth noting that the price action remained relatively bullish. The Nasdaq's opening levels fell within the lower half of its intraday range, while the index closed well within the upper half of its intraday range. What was also notable was that the internals held positive on an intraday basis, even while the Nasdaq was posting a narrow loss -- something you don't see a whole lot.
So what about the forward outlook from here? Well, at this point it's probably productive to quickly cover a few of the recent reviews in this column. A few of the notable pieces include:
The October 10th assessment of a potential market bottom with the Nasdaq -- our bias in this column shifts in favor of upside. Index was coming off its October 9th close at 1,114.
The October 17th review in which we targeted Nasdaq 1,423 -- confirmation of the bias favoring upside. Index was trading at 1,279.
The November 6th discussion the Nasdaq's 10-day Bollinger bands following two consecutive breaks of that upper band -- bias favors near-term consolidation, or a pullback, with the longer-term implication favoring additional upside. Index rested at 1,401.
The November 12th assessment of important support in the range of 1,300 to 1,325 -- bias favors near-term upside with the index at 1,319.
The November 18th review in which we conditionally identified an intermediate-term target in the range of 1,500 to 1,520. Index rested at 1,411.
Now all of the preceding raises a few interesting considerations from current levels. Keep in mind that yesterday, the Nasdaq closed at 1,482 after touching an intraday high of 1,487. So let's place that move in context. On the one hand, 1,487 represents a sizeable move at this point -- 168 points off our November 12th bias shift with the Nasdaq at 1,319 -- that's 12.7% in a matter of ten trading days.
Yet another way to look at it is in terms of our intermediate-term target. We've set our intermediate-term target in the range of 1,500 to 1,520. This means that yesterday's intraday high of 1,487 fell just 13 points shy of our target, and only 12 points from the index' current 200-day simple moving average at 1,499.
So we have a situation in which the Nasdaq has had a great run, and has also come up very close to its 200-day simple moving average. Yet we also have a market that is saying little in the way of signaling a move lower. To shift the bias negative at this point would be a call based almost exclusively on its very nearby 200-day simple moving average. So for the time being, we'll raise the caution flag at this point -- don't be surprised if we're looking for consolidation tomorrow based on today's price action.
Once again, getting to the very near-term technical levels -- to the downside, look for initial support in the range of 1,467 to 1,469 followed by a more modest level at 1461. Those two areas are followed by more significant support in the range of our former resistance at 1,448 to 1,452. To the upside, look for overhead now in the range of congestion at 1,487 to 1,490. That's followed by more significant resistance at the index' 200-day simple moving average which currently rests at 1,499. -- Mike Ashbaugh, Briefing.com
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