From Briefing.com: So the Chicago Purchasing Manager's Index was the market's big driver Friday. As it turns out, the Chicago PMI rose 4.6 points to a reading of 52.2, comfortably exceeding the consensus expectation of 49.0. The response was a broad-based move to the upside, behind the strongest volume totals of calendar 2003.
Now from a technical perspective, the Nasdaq held our support point at 1591 relatively well intraday -- as a point of interest, this area was identified as initial support in our Technical Levels column Friday morning. Nonetheless, the index couldn't quite make that 1600 level, touching an intraday high at 1599.92 before closing just under that level. All in all, the current outlook remains consistent with that Friday morning review.
Looking towards the upcoming week, there are a few identifiable catalysts to have an eye on. While the earnings calendar is relatively lean, the more likely drivers are tied to the economy. To start the week, look for the ISM Index (Institute for Supply Management) to be released Monday morning at 10:00 ET. Now the ISM number is a survey of purchasing managers, and is viewed as one of the broader measures of economic activity. Be aware that the stronger-than-expected Chicago PMI -- the number that triggered that Friday rally -- bodes well for a favorable number out of the ISM Monday.
There are several other noteworthy reports due out next week, all of which precede the headline May Employment Report scheduled for release Friday morning. For a more detailed look at the coming week, please visit Briefing.com's Earnings Calendar and Economic Calendar. -- Mike Ashbaugh -- Briefing.com
5:06PM Weekly Wrap :
It was a short week, but a very good week for bullish investors as the major indices rallied strongly, underpinned by encouraging economic data and continued enthusiasm over the passage of a fiscal stimulus plan that included a cut in the dividend and capital gains taxes.
The week was bracketed by strong rallies on Tuesday and Friday in which the Dow posted triple-digit gains while the other indices followed suit with strong moves of their own. Leadership was broad-based throughout the week from both an industry and market-cap standpoint. The semiconductor, brokerage, homebuilding, and biotech sectors were among the more notable standouts that left the Nasdaq at its highest level since last June and the Dow and S&P at the upper end of the trading ranges they have been confined to since last August.
Feeding the buying interest was a batch of economic news that was highlighted by a reassurring consumer confidence report for May from the Conference Board on Monday, another strong report on new and existing home sales for April that same day, and a stronger than expected reading in the Chicago Purchasing Manager's Index for May on Friday. The latter checked in at 52.2 - a level that is consistent with expansion and which raised the expectations bar for Monday's ISM Index. On the flip side, the 2.4% decline in Durable Orders that was reported on Wednesday was disappointing, yet the market took the news in stride, cognizant that it was for the month of April when the war with Iraq was still an overhang.
Helping matters as well was an announcement on Friday that the government lowered the terror alert level back to Yellow (Elevated) from Orange (High).
All in all, the abbreviated week brought some outsized gains that, frankly, raised some eyebrows and caused some head-scratching. Additionally, it raised the question as to how much further this rally can run. To this point, it hasn't paid to fight the tape, but at this juncture, Briefing.com would urge investors to assume a more cautious stance and refrain from chasing the rally.
Next week brings a good deal of economic data that will help shed some light on the post-war economy. The key reports will be the ISM Index on Monday and the May employment report on Friday. For added perspective on these reports, be sure to visit Briefing.com's Economic Calendar or take a look at the Looking Ahead Story Stock composed earlier in the day.
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 8601.03 8850.26 249.23 2.9 % 6.1 %
Nasdaq 1510.09 1595.91 85.82 5.7 % 19.5 %
S&P 500 933.23 963.59 30.36 3.3 % 9.6 %
Russell 2000 418.40 441.00 22.60 5.4 % 15.1 %
30-May-03 11:48 ET
[BRIEFING.COM - Mike Ashbaugh] The Nasdaq continued to build on its winning streak Thursday, carving out its fifth consecutive positive session. Yet an interesting aspect of this one-week rally has been the unusually strong relative volume. The Nasdaq started the week Tuesday with a session that turned more than 1.9 billion shares -- a total rivaling the best levels of calendar 2003.
Yet despite the strong start, Nasdaq total volume readings have actually become progressively stronger throughout the week -- note Wednesday's volume total exceeded 2.0 billion shares, while Thursday's number surpassed the 2.2 billion share mark. The broader implications of this strong volume will be addressed towards the tail end of today's review.
At any rate, this first chart is an intraday chart of Thursday's trade activity in which each bar on the chart represents the opening and closing levels for each five-minute time frame. This chart serves as an 'up close' look at the recent price action, and illustrates several of the notable technical levels.
You can see the index found a pivot point around 1581, and also managed to hold our final support point in the vicinity of 1567 to 1570 -- recall both of these were areas we were looking towards yesterday. The direct quote from that Thursday review read as follows: "To the downside, look for initial support now at 1582, followed by a more significant floor in the somewhat broader range of 1567 to 1571."
Now to be fair, the index didn't quite make our initial resistance at 1595, topping out intraday just over 1591. Nonetheless, it's worth reiterating that since our bullish bias shift on Thursday, May 22nd the index has added as much as 108 points. That amounts to a 7.3% gain over a period of just six sessions.
So this second chart widens the view versus that initial chart by a factor of twelve. This is an hourly chart of the Nasdaq in which each bar on the chart represents the opening and closing levels for each sixty-minute time frame. There are two primary take aways from this chart.
The first observation ties into the recent price action. Note the pronounced buy interest on that break above our former resistance at 1567. Also note the index subsequently maintained a posture above that breakout point, again barely scraping by on that final test late yesterday. So holding that breakout point was consistent with a continuation of the near-term bias.
The second point here pertains to the Nasdaq's relationship to its 20-period exponential moving average -- that green line on the chart. Note the index has trended relatively well off this 20-day ema in recent weeks. Breaks below that green line have suggested a lower immediate bias, while breaks above it have indicated a higher bias. Recall more recent points of interest regarding the near-term bias include the consolidative bias shift initiated on Monday May 19th, the subsequent bullish bias shift on Thursday, May 22nd and the index' capacity to lift comfortably off our 1504 support point on Tuesday, May 27th.
So what about the broader outlook at current levels? From a trading perspective -- i.e. outside the straight technical read -- this is beginning to look like a run away market. Put another way, the price action is taking the inverse shape and feel of the way things looked back in September and early October. Recall that at those levels, traders were looking for a 'capitulation day' -- a session of panic-induced sell pressure in which even the last bullish holdouts threw in the towel. While it took about four to six weeks to materialize -- depending on any given individual perspective -- the market did ultimately carve out a bottom back on October 10th.
Now as we've addressed here ad nauseam, we have properly maintained a bullish near-term bias over the prior six sessions. At the same time, we have attempted to provide the framework for trading a reversal if or when it should materialize.
Yet the progressively stronger volume this week ties back to that notion of capitulation. It may be that rather than a pronounced reversal, the index needs what is called a 'blow off top' -- this would be characterized by panic-induced buy interest in which all those 'waiting for a pullback' finally give up and pile in for fear of missing the move altogether. The issue with this potential outcome is a blow off top can only be identified with the benefit of hindsight. So the practical take away is this current leg higher may still have a pronounced single-day move left in it.
At any rate, it's worth reiterating that total volume is genuinely approaching extreme readings at this point. We already addressed the progressively stronger volume on each session this week. To this point today, the Nasdaq is on pace to surpass yesterday's 2.2 billion total shares traded.
So the current outlook remains comfortably bullish and the same 'watch out' applies regarding a reversal. As one final point, note that on the weekly chart (not illustrated), the Nasdaq is situated to carve out a bullish engulfing pattern this week which is conventionally interpreted to bode well for additional upside going forward.
For those operating on a very near-term basis, the straight technical levels are as follows -- these account for the positive early bias. From current levels, look for initial overhead now at 1597 to 1600 which brackets today's intraday high and round number resistance. That area is followed by additional potential resistance at 1607. To the downside, look for initial support now in the vicinity of 1591, followed by an additional floor at 1581. -- Mike Ashbaugh, Briefing.com
The biggest corporate event, though, will be Intel's (INTC) mid-quarter update after the close on Thursday. In Fedland, Richmond Fed President Broaddus (who is a voter on the FOMC) will be delivering a speech on the U.S. economy on Wednesday while Boston Fed President Minehan (non-voter) will be speaking to regional bankers on Thursday.-- Patrick J. O'Hare, Briefing.com
3:21PM Integrated Circuit -- New High Profile (ICST) 25.79 +1.33: Integrated Circuit Systems (ICST), which supplies timing products for use in PC motherboards and peripheral applications, broke out to a new 52-week high today on 1.5x avg daily volume. In its most recent qtr, the co reported $0.22 in EPS on $60.9 mln in sales (up 38% and 14%, respectively), and analysts expect the co the grow 2003 EPS by 43% to $0.87 (P/E 29.8x) and grow 2004 EPS by 15% to $1.00 (P/E 25.9x). Note that 11% of the float is sold short.
1:11PM Unusual Volume -- Transmeta rises 6.6% on 3.6x avg volume of 3 mln (TMTA) 1.44 +0.09:
12:05PM QLogic cut to Hold from Buy at AG Edwards -- valuation (QLGC) 50.02 +0.66: AG Edwards downgrades to Hold from Buy based on valuation; stock now trades at about 38x their CY03 EPS est and 32x their CY04 est, and trades at an EV/sales ratio of 7.6x their CY03 rev est, which is 61% higher than peer ELX at 4.7x. Target is $50.
10:57AM Novellus Systems (NVLS) 33.88 +1.71: Some companies attempt to paint a rosy picture of business conditions during mid-quarter calls, whereas others choose not to mince words. Such was the case with Novellus Systems (NVLS) last night when it disclosed that volatility and uncertainty continue to plague the current quarter.
Consequently, NVLS made no changes to its already cautious Q2 (June) targets. The company expects a 38% sequential drop in EPS, to $0.05, due to product mix and costs associated with field upgrades that should impact gross margins by 1% from Q1 levels. Additionally, NVLS anticipates revenues flat with Q1 levels, at $238 mln, shipments down 9% to $215 mln, and bookings down 23% to $188 mln.
The culprit for the conservative guidance lies with the outbreak of SARS that has exacerbated an already weak demand environment. SARS has led to operational difficulties in Asia as managers have delayed purchase orders and exercised caution in investment decisions. As a result, bookings in Southeast Asia are tracking below forecasts. Strikingly, Japan is experiencing increased activity, though the country's uptick should not contribute meaningfully to the overall sales picture given NVLS' limited exposure to Japan.
While the SARS epidemic played a significant role in the overall drop-off in orders, management admitted that its recent bookings momentum would have tapered off in Q2 due to continued weakness in Taiwan. The country's foundries have been reluctant to ramp up orders with 1H02's uptick in demand - that turned out to be inventory replenishment - fresh in their minds, and their unwillingness to spend has pushed out the entire industry's recovery.
In light of such lackluster end-market demand, NVLS conceded that 2H03 visibility remains uncertain. Several 300 millimeter fabs could drive 2H03 upside, although without greater clarity into the capital spending plans of Asia, as well as Europe, order timing is unclear.
Given the company's lack of visibility and the semi cap equipment space's challenging operating environment, Briefing.com retains its cautious opinion of NVLS shares. NVLS remains the best-positioned company to benefit from the industry's transition to copper; however, as long as excess capacity persists and end market demand remains tepid, NVLS should continue to find it challenging to grow revenues and margins. --Heather Smith, Briefing.com
9:42AM Broadcom cut to Neutral from Buy at Fahnestock (BRCM) 24.40 +0.87: -- Update -- Firm's valuation model calculates that BRCM should trade at $26/share.
9:31AM Marvell cut to Sell at Fahnestock -- valuation (MRVL) 31.66 -0.03: With Intel winning the majority of GbE sockets on new Springdale and Canterwood motherboards, firm has reduced its C2H03 and CY04 revenue and EPS estimates for Marvell. Firm finds stock fully valued at $27.50 based on its newly reduced estimates.
9:17AM Broadcom upgraded at Wedbush (BRCM) 23.53: Wedbush Morgan upgrades to Buy from Hold, citing improved broadband demand, the likelihood that the corporate performance in Q2 will exceed official guidance of 12-14% QoQ growth, the new priority of improving pretax operating margin, and the prospect of a credible new CEO within the next 60-90 days. Target is $30.
9:01AM ATI Tech price target raised to $9.50 at Sterling (ATYT) 7.20: Sterling analyst raises price target for ATYT from $7.50 to $9.50 predicated on design wins for the integrated graphics market and consumer products such as cell phones and set top boxes. The analyst is reiterating his Buy rating on the stock.
8:07AM Sanmina-SCI could lose H-P European desktop assembly biz (SANM) 5.85: CSFB believes that HPQ is preparing to wind down its European desktop PC final assembly business with SANM and shift it to Taiwanese ODM Hon Hai; firm believes that Hon Hai was able to offer more competitive pricing terms from its facility in the Czech Republic, and a loss of the entire European contract could be material for SANM in FY04, worth about $600 mln in revs.
8:03AM Netopia routers selected by EarthLink for DSL product (NTPA) 3.27: Announces that EarthLink has selected the Netopia R5300 router for use with EarthLink's new Extended DSL product.
Broadcom (BRCM) 24.51 +0.98: Wedbush Morgan upgraded to Buy from Hold, cited improved broadband demand, the likelihood that the corporate performance in Q2 will exceed official guidance of 12-14% QoQ growth, the new priority of improving pretax operating margin, and the prospect of a credible new CEO within the next 60-90 days. Target is $30. Wedbush Morgan upgrades to Buy from Hold, citing improved broadband demand, the likelihood that the corporate performance in Q2 will exceed official guidance of 12-14% QoQ growth, the new priority of improving pretax operating margin, and the prospect of a credible new CEO within the next 60-90 days. Target is $30. Fahnestock cut to Neutral from Buy, cited valuation.
Integrated Device (IDTI) 12.11 -0.14: Company reaffirmed its Q1 guidance.
Marvell (MRVL) 31.67 -0.02: Fahnestock cut to Sell. With Intel winning the majority of GbE sockets on new Springdale and Canterwood motherboards, firm has reduced its C2H03 and CY04 revenue and EPS estimates for Marvell. Firm finds stock fully valued at $27.50 based on its newly reduced estimates.
NVIDIA (NVDA) 26.17 +1.96: UBS upgraded to Buy from Reduce in the wake of recent PSP and PSX product announcements by Sony, which effectively create a new multimedia channel and indicate an eminent and rapid broadening of the addressable market opportunity for graphics solutions providers such as NVDA. Thinks co's heavy investment in next-generation foundry device production position them well for emerging multimedia opportunities. Moreover, recent checks suggest that Nvidia's GeForce 5200 is experiencing stronger than anticipated success owing to a lack of DX9 generation competition at similar price points and performance. Firm's price target goes to $40 from $13.
QLogic (QLGC) 50.11 +0.75: AG Edwards downgraded to Hold from Buy based on valuation; stock now trades at about 38x their CY03 EPS est and 32x their CY04 est, and trades at an EV/sales ratio of 7.6x their CY03 rev est, which is 61% higher than peer ELX at 4.7x. Target is $50.
Xilinx; PMC-Sierra : Morgan Stanley downgraded XLNX (29.90, -0.61) to Equal-Weight from Overweight based on valuation, as the stock has exceeded their $30 target; firm raises target to $33, but believes current valuations will make it difficult for XLNX to outperform from current levels. Firm also downgrades PMCS (10.89, -0.23) to Underweight from Equal-Weight, as the stock now trades at a premium to many of its wired communication IC peers, and they believe its strong absolute and relative performance will not continue from the current stock price.
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