Updated: 08-May-03 - General Commentary - Market labored all day, with the major indices closing down across the board. Relative to recent gains, decliners were modest and orderly. Nevertheless, there was nothing in the close or the overall action to suggest that buyers would return immediately.
Techs fought overbought short-term technicals and a disappointing earnings report from Cisco. Actually, earnings themselves weren't that bad but the guidance left no room for additional upside. To the contrary, sluggish sales outlook and potential margin erosion will make it difficult for CSCO to maintain current growth stock valuations. Briefing.com went into more detail on CSCO's earnings/outlook in Wednesday's Stock Brief.
All in all this, sector/market simply looks tired after a solid, broad-based rally. We might see some modest rally tries over the next day or two, as that's been the pattern of late. However, given the overextended technical picture, look for sector to adopt a more neutral to slightly negative tone over the very short-term.
Pullback will provide sidelined investors an opportunity to (re)enter the long side in some of the stronger industry groups such as semis, software and telecom equipment. As we noted the other day, hardware industry also beginning to show signs of improved relative strength. Just yesterday, DELL established a new intra-day 52-wk high. Meanwhile, stocks such as Apple (AAPL), IBM (IBM) and EMC (EMC) are poised to break out of long-term basing formations.
Robert Walberg, Briefing.com
Close Dow -27.73 at 8560.63, S&P -4.77 at 929.62, Nasdaq -16.95 at 1506.76: The indices started and finished the day trading in a relatively narrow range in negative territory... The interesting part of the session came in the middle, when all of the indices popped to new session highs, and even into positive territory in the case of the blue-chip averages, albeit only to ultimately decline back to session lows... But first things first...
The advance was spearheaded by the Dow, which had outperformed the S&P 500 and the Nasdaq throughout the session and was particularly impressive in the face of the indices' gains ranging 3.4-14% year-to-date and 13.7%-18.5% off of March lows... It was the scope of this advance that caused the eventual demise of the indices back towards their opening lows as investors asked themselves if the indices had come too far, too fast, especially in light of yesterday's FOMC meeting, which elicited concerns about deflation and the pace of economic activity... Leading the market in its retreat was the Nasdaq, which had consistently underperformed its blue-chip counterparts throughout the session...
Among the most notable laggards were influential sectors such as semiconductor, computer, financial, drug, networking, transportation, and biotech groups... Bucking the trend were soft drink, oil & gas service, homebuilding, casino & gaming, advertising, and tobacco issues... Separately, the economic calendar had two reports on it, although neither of them particularly market-moving... Specifically, the Wholesale Inventories report came in at 0.5% vs. the consensus of 0.2% and the Consumer Credit report checked in at 900 mln vs. the consensus of 3.5 bln...
Elsewhere, the dollar was able to gain some ground against the euro for the first time in multiple sessions following a report showing that German unemployment rose to its highest level in five years... NYSE Adv/Dec 1526/1725, Nasdaq Adv/Dec 1376/1754
10:44AM Qualcomm lower amid competitive concerns (QCOM) 32.18 -0.65: Hearing that Fulcrum comments contributing to early weakness in the stock. In a recap of a Texas Instrument event yesterday, firm says TXN is going on the defensive introducing a cdma2000 product in Q3 to directly compete with QCOM. According to firm, this is new market initiative, opening up a potential of about 20% of the handset market to TXN. Because of a prior agreement this is not expected to result in royalty payments from TXN to Qualcomm, but handset manufacturers may still be required to do so depending on individual agreements in place. Specific details of the new product were not provided.
9:31AM Applied Micro target raised to $7 from $5.50 at UBS (AMCC) 4.62 -0.11: UBS' read through from the Cisco earnings report bolsters firm's confidence that the worst is behind AMCC in communication oriented revenue shortfalls. Firm believes that Cisco's positive results in its router division speak to improving opportunity in router and other edge networking equipment opportunities where firm believes AMCC is well positioned. Cisco comments regarding double-digit sequential growth in its New York metro area deployments are also encouraging. Firm raises price target to $7 from $5.50.
9:05AM Cisco Systems target raised at BofA, while Sell reiterated by Fulcrum (CSCO) 15.90: --Update-- Based on stronger than expected orders, visibility and management outlook, BofA Sec is raising its price target to $20 from $17. Fulcrum is not as positive in its assessment of the Cisco report. Firm reiterates its Sell rating on stock on view that increased competition and lower gross profit margin revenue opportunities will hamper future earnings growth. Believes that strength in sales Cisco experienced in the final weeks of April will not carry into Q4... CSCO shares are trading at $15.68 in pre-market.
Intel (INTC) 19.16 -0.38: Reiterates Q2 revs of $6.4-$7.0 bln... Sees gross margin 50% in Q2.
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