From Briefing.com: Updated: 09-Jan-03 - General Commentary - Just as they did back in December, traders used a test of the 200-day moving average as an exit point. Nasdaq's failure to get above this pivotal ceiling, while disappointing, isn't the end of the world. To the contrary, Nasdaq remains within a stones throw of this level and, with the index and its 50-day moving average trending higher, it should be just a matter of time before this ceiling gives way.
Sparking today's modest retreat were another earnings warning from Gateway (GTW) and cautionary comments from Intel (INTC). The former should have come as no surprise, however, as company has routinely struggled to meet expectations over the past couple of years. As Briefing.com penned back in early February of last year, GTW likely to be the K-Mart of the PC industry. Business lost here will be picked up by other, more efficient producers.
In light of sluggish PC sales, news out of Intel that company doesn't see material pick up in business until the second half of 2003 should also come as no big surprise. Nevertheless, after pushing sector sharply higher over past few days, investors were disappointed by the negative tone of the announcement and used it as an excuse to sell.
Combined the GTW and INTC announcements lend support to long-held Briefing.com view that sector is in maturation stage - a stage marked by slower growth and consolidation. Another characteristic of this stage is lower valuations - a reality that has yet to hit the sector and one which suggests that techs could struggle again this year.
News wasn't all bad and the pullback was orderly and well contained. Consequently, look for bulls to step in early tomorrow and try to recapture the momentum. If they can push Nasdaq above the 1437 area would encourage additional technical buying. On the other hand, if early rally attempt fails and index falls back through 1390-1380 sentiment will shift more permanently.
Robert Walberg, Briefing.com
4:06PM Foundry Ntwks guides revs above consensus (FDRY) 8.39: Co guides Q4 revenue forecast to a range of $84-$87 mln -- Multex consensus $78.44 mln. In addition, co expects to post increased profits compared to the prior qtr. In Q3, FDRY reported EPS of $0.06. Multex consensus is $0.05.
Close Dow -145.28 at 8595.31, S&P -13.00 at 909.93, Nasdaq -30.51 at 1401.06: Considering the influx of negative earnings/industry pronouncements, the proliferation of news headlines regarding the tense geopolitical standoff with Iraq and North Korea, and the dollar's mid-afternoon slump against the yen and euro, the major indices ended the day noticeably lower... These discouraging developments, combined with the general lack of bullish news items, gave investors reason enough to book profits in light of the stock market's aggressive start to the year...
Last night's Q4 earnings warning from Gateway (GTW 2.93 -0.24) set the tone for today's dismal session, in which the major indices opened modestly lower and steadily retreated for declines on the order of 1.4-2.1% at the close...
In addition, disconcerting news that North Korea is urging South Korea to join forces against the U.S., combined with reports that the U.S. has activated a forward command headquarters in Qatar, increased the odds of military conflict and reminded investors of the persistent geopolitical overhang on the market... Not surprisingly, the equity market dropped at the open, under the weight of an uncooperative technology sector that suffered from a good degree of profit-taking following its strong advance year-to-date... The semiconductor group, in particular, fell sizably in response to an admission by an Intel (INTC 16.68 -0.68) Vice President that he does not expect a big uptick in spending in the first part of 2003...
Wireless, storage, networking, and a number of large-cap issues also paced tech's retreat to the downside, and the influential group's pullback contributed to weakness across a number of groups, such as financial, transportation, and biotech.. The lack of influential leadership to the upside effectively paralyzed any recovery effort... In fact, the market's pullback picked up speed in the afternoon in response to the dollar's sudden fall against the yen and euro... The greenback plummeted following comments by Pimco's Bill Gross that were in support of a weaker dollar...
This, in turn, pushed the price of gold higher by $6.60 to 354.30/oz for the session... Elsewhere, treasuries improved across the curve thanks to mortgage buying, weakness in equities, and the rally in gold... NYSE Adv/Dec 1248/2054, Nasdaq Adv/Dec 1193/2062
12:36PM Advanced Micro signs advanced chip development pact with IBM (AMD) 6.90 -0.27:
12:08PM Varian Semi (VSEA) 28.23 -0.55: Adams Harkness upgrades Mkt Perform to STRONG BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
12:08PM Novellus (NVLS) 32.42 -0.70: Adams Harkness upgrades Mkt Perform to STRONG BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
12:07PM Nanometrics (NANO) 4.85 +0.36: Adams Harkness upgrades Mkt Perform to STRONG BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:59AM Pixelworks (PXLW) 6.69 -0.36: Roth Capital initiates NEUTRAL. Target $7. Despite high multiples, stock does not appear overly expensive and could trade upwards with improved visibility and investor confidence.
11:25AM Trikon (TRKN) 5.23 +0.19: Adams Harkness upgrades Mkt Perform to BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:25AM Therma-Wave (TWAV) 1.39 +0.18: Adams Harkness upgrades Mkt Perform to BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:25AM MKS Instruments (MKSI) 18.22 -0.78: Adams Harkness upgrades Mkt Perform to BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:23AM INFICON (IFCN) 4.58 +0.03: Adams Harkness upgrades Mkt Perform to BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:23AM Helix Tech (HELX) 13.08 +0.37: Adams Harkness upgrades Mkt Perform to BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:23AM Entegris (ENTG) 11.44 -0.18: Adams Harkness upgrades Mkt Perform to BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:22AM Cymer (CYMI) 0.99 +0.03: Adams Harkness upgrades Mkt Perform to BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:22AM Asyst (ASYT) 9.30 +0.10: Adams Harkness upgrades Mkt Perform to BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:21AM Applied Materials (AMAT) 14.87 -0.43: Adams Harkness upgrades Mkt Perform to BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:21AM Advanced Energy (AEIS) 16: Adams Harkness upgrades Mkt Perform to BUY. Recommends increasing exposure to group in anticipation of improving order patterns.
11:05AM Powerwave (PWAV) 5.11 -0.21: Adams Harkness downgrades Buy to MKT PERFORM. Despite limited downside, sees little evidence of catalyst to move shares up in near to mid-term.
10:32AM Solectron (SLR) 4.17 -0.18: CSFB downgrades Neutral to UNDERPERFORM . After SLR's recent run, firm cannot justify valuation given weaker-than- expected balance sheet progress, disadvantaged end market positioning, and troubling customer dynamics
10:30AM Sanmina-SCI (SANM) 5.07 +0.02: CSFB upgrades Underperform to NEUTRAL. Target $5. Cites yesterday's outsourcing win with IBM, but thinks stock is fairly valued at current levels.
12:05PM Sector Watch: Semiconductor : -- Technical -- Sector index (SOX at 322) recently pushed to fresh session lows with today's pressure coming from MU -6.2%, AMD -4.1%, MXIM -3.7%, NSM -3.6%, BRCM -3.6%, LSCC -3.6%, AMAT -3.3% and KLAC -3%. MOT (-0.2%) is the best performer in the wake of co. commentary regard 2003 handset sales growth. The SOX index is testing support at 321 (38% retrace of recent surge) with its 50 day sma at 320. Support for the semi HOLDRS (SMH 24.48) is at 24.40/24.30 (Jan 6 gap and 20 day ema) with 24.05 marking the 50% retracement.
11:49AM Flash chip stocks decline on Samsung rumor : We are hearing from traders that this morning's weakness in SNDK (-7.6%) and CY (-5.3%) is being attributed to a rumor that Samsung's flash memory prices are soft.
11:46AM StorageNetworks to cut 50% of workforce; CEO steps down (STOR) 1.32 -0.02:
10:27AM AGR.A +10.5% rises on Samsung deal : Hearing that Agere win at Samsung is considered a possible negative for Texas Instruments (TXN -1.9%) and Skyworks (SWKS -7.8%).
10:06AM Ahead of The Curve: Gateway (GTW) $2.77 -0.40 -(12.6%) In yet another confirmation that the IT (information technology) markets are maturing, Gateway issued a warning last night that sounds this bell loud and clear. As noted below on Page One, it will pull the rest of the market down today, but it also casts a long shadow ahead for tech stocks in the coming year. The basic problem is that tech stocks are still priced for strong growth, as if their marketplace was a vibrant expanding market - but it is not.
You don't need to analyze the Gateway warning very deeply to get the story. Unit sales up 5% plus revenue down 5% (year-over-year) equals pricing pressure. Gateway used a specific strategy of low pricing to build market share. At Briefing.com, we were critical of this approach as far back as January 25, 2002 (See Story Stock Archives for the details) and most recently again on Monday (1/6/03), when Patrick O'Hare wrote "...the company is clearly adrift in terms of finding a recipe to forge a profitable niche in a very competitive industry." Face it: PCs are commodities. If this were an explosive growth market, a price cutting strategy might work. In a mature market, price cutting only erodes profits, as the Gateway experience shows.
Add in Intel's announcement in a Reuter's news story that they expect slow growth for the next six months, with the only real growth coming from Asia, and you have yet another confirmation of the maturing market for technology. It is time to declare this idea as proven - and adjust your investment premises accordingly. When we have written on this topic before, we invariably get a slew of emails that all make the following argument: "you don't understand, a new wave of innovation is going to cause all of these old systems to be replaced." That might be true, but there is no indication that such a new wave is anywhere on the horizon. This is clearest for the IT market (enterprise level computer systems), but it is also true for telecom equipment, networking equipment, broadband equipment, and fiber networks.
Gateway's announcement is far more relevant as a data point for the entire technology market than it is for the stock itself. (GTW has almost $3 in cash per share and sells for $3 - it is not going out of business soon, but there is no investment premise for it either.) But for all other technology investors looking for rebounds in tech stock prices this year, be warned: even if sales increase for the biggest players in 2003, if the stock market comes to view the technology marketplace as maturing, the growth valuation multiples will be adjusted lower, preventing price increases. The stock market has not come to this view yet, but we think that viewpoint will settle in strongly over the next six months, as more and more confirming data points come in, like Gateway's did last night. - Robert V. Green
9:38AM Technical Levels : At this point, the Nasdaq is once again edging up towards its 200-day simple moving average. Now on the prior leg higher, the index tested its 200-day on two consecutive sessions. Yet on both occasions, it failed to hold that level on a closing basis. The most recent failure occurred on December 2nd, which contributed to the rationale for our December 3rd bias shift in favor of a pullback.
Now if you're looking for the last time the index actually closed above its 200-day simple moving average, you'll need to take a somewhat broader view. This rare market configuration last occurred on March 11th, 2002 -- roughly nine months ago -- and was sustained for all of two consecutive sessions. So this ongoing test over the next several sessions is something to keep a close eye on. Keep in mind that while the longer-term bias in this column has been bullish since October 10th, many professionals look for a sustained posture above that 200-day as the longer-term trigger to an entry point.
Now when we reviewed the Nasdaq yesterday, we were looking for consolidation within the context of the bullish bias shift which originated on January 3rd. As it turns out, the index continued higher, and on an intraday basis, it actually edged two points above its 200-day simple moving average. Yet as we've already suggested, the Nasdaq failed to hold this average on the closing basis, finishing with a 10-point gain to close at 1431 -- this close matched up well with our initial resistance, identified yesterday, at 1430.
All this begs the question of what we can expect from current levels. The overall price action continues to convey a bullish underlying tone. Yesterday's volume exceeded 1.7 billion total shares which marked its strongest level in a month. Yet the current leg higher, which started on January 2nd, has already traversed 100 points in a matter of just four trading days. So the real question is whether the index can extend itself on a four-day, 100-point run and still have enough steam to take out a major moving average like the 200-day.
Conventionally you would expect the markets to digest the recent gains before making a big break of this nature, and that's what we expect in this instance. So again, we continue to look for modest consolidation within the context of a bullish bias. Yet while immediate consolidation might be in order, it's also worth reiterating that the underlying strength in the index has been notable -- we wouldn't be looking for a significant pullback from current levels.
Getting straight to the very near-term technical levels, look for that 1430 to 1431 area to serve as a modest near-term pivot point. To the downside, look for initial support in the range of 1419 to 1423 followed by an additional floor in the area of 1411. Those two areas are followed by another support point at congestion in the vicinity of 1,398 to 1,400. To the upside, look for overhead now at the index' 200-day simple moving average which currently rests at 1438. That level is followed by additional resistance in the range of former congestion ranging from 1448 to 1452. -- Mike Ashbaugh, Briefing.com
ISIL Intersil announces new WLAN driver (15.77) Co announces a new PRISM 802.11b WLAN driver solution that supports Smart Displays based on the Windows CE for Smart Displays operating system.
7:49AM Semi Equips upgraded at Adams Harkness : Adams Harkness recommends increasing exposure to the Semiconductor Equipment group in anticipation of further good news. Firm raises CGNX, NANO, NVLS, VSEA to STRONG BUY from Mkt Perform, while lifting ADEX, AEIS, AMAT, ASYT, CYMI, ENTG, HELX, IFCN, MKSI, TWAV and TRKN to BUY from Mkt Perform. Firm sees improving order patterns carrying into H2'03 and 2004, driven by improved demand for semiconductors as corporations upgrade their aging computer systems.
7:22AM Solectron cut to Underperform from Neutral at CSFB; target $3 (SLR) 4.35:
7:12AM Motorola COO sees industry handset sales up 8-10% in 2003 -- Reuters (MOT) 9.69:
7:06AM Agere Systems inks $150 mln supply agreement with Samsung (AGR.A) 1.42: The one-year pact calls for Agere to supply wireless data chipsets and software for use in Samsung's new generation of advanced mobile phones.
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