From Briefing.com: Although the averages edged off the lows in late trade, mildly negative action persisted most of the session. However, the focus was not on a specific bearish development, the generally weaker tone or the late bounce but rather on the very limited pace of the action. Volume at both the Nasdaq (1.1 bln) and NYSE (955 mln) exchanges ended below the modest pace of the last few sessions and well below the average of the last few months. As far as the bias is concerned, there was neither enough volume nor bargain hunting interest to alter the negative tone that developed in the wake of Friday's downward reversal in the Nasdaq Comp or the Dow (S&P 500 up 0.65).
There was some favorable commentary from the Street with the Soundview call in the semi sector the most prominent. The firm raised its price targets for a number stocks in the group in the wake of Friday's preannouncement from Intel (INTC 27.24, -0.5%) which it said provides further evidence of broad-based semiconductor recovery. Several other firms issued positive commentary and raised targets for INTC. While the key semi group and the Nasdaq Comp opened near unchanged and attempted to edge higher, more cautious comments from Intel's CEO over the weekend ("too early to suggest it is a total turnaround") and the weaker action last Friday were enough to keep buyers on the sidelines.
Some sector rotation developed as recent leaders in tech--disk drive, telecom, computer-hardware, semi-- and cyclical (CAT -2.8%, AA -1.2% downgraded) weakened while the more defensive tobacco and drug groups, which have significantly underperformed, exhibited relative strength. Positive comments from Wal Mart (WMT +1.1%) also provided lift among discount retailers.
The Treasury market ended on the defensive despite some early flight-to-safety upticks in the wake of the India financial district bombing. The downward momentum was maintained and accelerated amid thin trade following a debt downgrade and the record strength exhibited in the existing home sales numbers.
Although there are several economic reports due out tomorrow (Durable Orders, Consumer Confidence, New Home Sales), lower volume action is expected to persist ahead of the holiday. Of note, according to the Stock Trader's Almanac, this lower volume week has not been kind to equities over the last six years with the average decline during this period for the Nasdaq at -2% (-4.3% S&P, -4.6% Dow). This of course can be taken two ways. On the one hand we have a short term pattern of negativity and on the other we could suggest that the market is certainly due for a change of pace for this week. Following patterns such as this with out some other confirmation does not make investment sense. For instance, the Almanac also pointed out that this month is one of three negative months for the S&P. While this could still develop, traders would have missed out on an impressive, broad based run this month if they had remained sidelined.
As far as the short term technical picture is concerned, the Nasdaq Comp slumped 3.3% in slightly more than one session's worth of trade which is typically followed by at least some corrective upticks. Will be watching resistances at 1763 (20 period exp mov avg)-- which is a short term trend indicator, congestion at 1768 and 1776 which marks its July high. Sustained action above these levels is needed to improve the current weaker bias. On the downside we have support at today's low and the 50 period simple mov avg (1752/1749), 1746/1745 (38% retrace of Aug rally/straight line support) and 1740/1737 (important intraday pivot during July). -- Jim Schroeder, Briefing.com
6:00PM Monday After Hours price levels vs. 4 pm ET levels: The lackluster trade in the equities market is being followed by a more refreshing after-hours session. Presently, the S&P 500 futures are trading 0.6 points above the fair value of 993, while the Nasdaq futures are 1.5 points above the fair value of 1307.
Only two earnings reports after the close today. The first comes from AmeriCredit (ACF 8.65 -0.20), a consumer financial services company. ACF reported Q4 (Jun) loss of $0.11 per share, which included a pre-tax charge of $57.7 mln and was not comparable to the Reuters Research consensus. Excluding this charge, Briefing.com came up with pro forma earnings of $0.26 per share, $0.06 better than the consensus of $0.20. The company also restated operating results for fiscal year 2002 and the nine months ended March 31, 2003. Restated earnings for FY02 were $3.50 compared to previous $3.87. For the nine months ended March 31, 2003, restated results were $0.29 compared to previous $0.30. The restatement resulted from a review of certain interest rate swaps that were entered into prior to 2001 and used to hedge interest rate risk on a portion of its cash flows from credit enhancement assets.
The second earnings report of the night was from construction services company, Dycom (DY 20.50 +1.89). The provider of specialty contracting services checked in with Q4 (Jul) earnings of $0.24 per share, $0.06 better than the Reuters Research consensus. Revenues rose 23.4% year/year to $182.9 mln versus the $162.6 mln consensus. Looking to 1Q04 (Oct), the company said it now sees earnings of $0.22-0.27 per share on revenues of $165-185 mln. The current consensus is for earnings of $0.20 per share on revenues of $162.5 mln.
Sports Authority (TSA 29.74 -0.28), a full-line sporting goods retailer, reported earnings for Gart Sports Company, with which TSA had completed a merger on August 4, 2003. For Gart Sports, Q2 EPS came in at $0.50 on revenues of $267.5 mln versus $261.7 mln in the prior year's Q2. Second quarter comparable store sales decreased 0.6% compared to last year. Combined company results for the new Sports Authority will be provided beginning with Q3. Going forward, TSA is forecasting Q3 sales of approximately $530 mln for the merged entity and earnings of $0.03-0.05 per share. For Q4, the company said it sees sales of approximately $720 mln and EPS of $1.04-1.06. For FY03, TSA said it expects earnings to be $1.85-1.90. All earnings estimates are exclusive of one-time merger integration costs.
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar and Guidance pages. -- Victoria Glikin, Briefing.com
Close Dow -31.23 at 9317.64, S&P +0.65 at 993.71, Nasdaq -1.01 at 1764.31: The market took its cue from Friday's lackluster action and spent most of the day trading below the unchanged mark, undercut by concerns surrounding the indices' near-term technical conditions... The S&P 500 did put together a decent rally in the last hour of trading that positioned it for a higher close; however, the broader market still remained well below its June/July recovery highs...
The Dow and Nasdaq breached the aforementioned areas earlier last week, but fell below them on Friday in a profit-taking rally that came in the face of Intel's (INTC 27.24 -0.15) raised Q3 (Sept) revenue guidance... Such selling pressure carried over into today's session, and kept the indices on the defensive... A negative A/D line reflected the downbeat tone of trading, although noticeably light volume levels suggested that conviction on the part of sellers was not particularly strong... Nonetheless, sellers still exerted their influence on a number of influential industries, taking financial, biotech, transportation, basic material, and tech lower... The latter stumbled following Intel CEO Craig Barrett's admission that it is 'too early to suggest it is a total turnaround.'...
One area that attracted the interest of buyers was homebuilding... The better than expected July Existing Home Sales report, which soared to record levels at 6.12 mln (consensus of 5.90 mln) helped downplay fears that home construction would fall along with the rise in the 10-year note...NYSE Adv/Dec 1326/1910, Nasdaq Adv/Dec 1348/1805
9:30AM The Technical Take : On the surface it was just a modestly weaker summer Friday session but a breakdown of the day shows that the action was a bit more disappointing than the final tally suggests. Early session activity saw the averages put together an impressive push with the Nasdaq Comp gapping up 2% amid a strong performance in the semi sector (SOX up as much as 5% as INTC raised outlook). However, by the close the gains for the averages had been wiped with both the Dow and the Nasdaq back slightly below their recent breakout points. While there were some negative technical developments that we will touch on, keep in mind that the indices and a number of key sectors had put together out sized gains already this month and that the volume on Friday actually lightened up as the market faltered.
Key leadership sectors of late have been cyclical, small caps and tech (particularly the semiconductor sector) and not surprisingly, these groups reversed more aggressively off of their recent highs on Friday. We highlighted one of the potential negative development on Friday in an In Play update for the semi sector ETF (exchange traded fund) with the ticker SMH: "Sector posted big gains again today bringing the rebound off the August low to roughly 25%. While still holding on to a solid percentage gain, the sector has been drifting steadily lower since 10 am. While proof/technical confirmation is still needed, the action today raises the possibility that the recent run is exhausted. The linked chart shows gaps formed over the last several months. Breakaway gaps argue for follow through as they occur on a move out of a consolidation. Exhaustion gaps occur at the end of extended moves but may merely led to a period of consolidation. Also of interest is the potential bear divergence in the daily stochastic and the very low choppiness reading (lowest since Sep 2001). The latter, which measures the ratio of the average price range, has a tendency to form near at least short term reversal points.
Dow Jones Ind Avg: Another technical negative developed in chart of the action for the Dow. This index stage a minor breakout of its two month range top early last week. the move was not aggressive but the index clearly was following this key area as it danced along the top of it before extending the gains on Thursday/Friday. The action on Friday resulted in a failure at psych/congest resistance in the 9500 area, a outside day (higher high/lower low) and a key reversal as it closed on the low of the day and below the previous low. This type of action raises the proability of at least a larger period of consolidation than seen over the last month could develop over the near term.
10:40AM Nasdaq Composite (COMPX) 1755: -- Technical -- Modest pressure in early week action with the index hovering near support at 1757 (July 31 high) after pulling back below its breakout point (1776) on Friday. Short term will need to see sustained gains back through intraday resistances at 1763 and 1773/1776 to help improve the very short term bias. Next supports are at 1745 (congest/38% retrace of Aug rally) and the 1740/1737 area.
8:30AM Soundview raises targets for semi stocks : In addition to their AMD upgrade (7:28), Soundview says INTC's preannouncement provides further evidence of broad-based semiconductor recovery and raises targets for the following semi stocks: LSI (to $14 from $12), CREE ($15 from $11), TXN ($27 from $24), ATYT ($18 from $14), NVDA ($19 from $16), CY ($18 from $11), ALTR ($24 from $19), XLNX ($29 from $27), FCS ($21 from $16), NVLS ($45 from $39), KLAC (to $69 from $57), AMAT ($27 from $22), LRCX ($39 from $27). Firm also initiates coverage of ASML with an Outperform rating and $27 target, calling the co its top pick due to its mkt leadership, above-avg mkt growth, and enticing valuation.
8:04AM Intel: several firms raising price targets (INTC) 27.39: -- Update -- First Albany raising tgt to $32 from $27, saying they believe INTC is seeing the benefit from an improving global economy. Bear Sterans raising tgt to $31 from $28, noting they expect gross margin improvement to continue in 2004. Fulcrum raising price tgt to $37 from $30, as firm has shifted their horizon out 6months as investors are beginning to price in a more sustainable sector recovery. Lastly, Prudential raising its prict tgt to $34 from $32, saying co will benefit from 1) higher value notebook PCs cannibalizing desktop PCs, 2) ongoing replacement cycle, c) penetration into the Asia mkt, and 4) new high-end server MPU's that will expand the addressable mkt.
9:06AM Goldman Sachs adjusts ratings on select airlines : Goldman Sachs out with call this morning recommending investors increase exposure to carriers with "cyclical leverage" in light of airline revenues accelerating faster than expected. The firm is upgrading AWA to Outperform form In-Line and ALK to In-Line from Underperform. In addition, it is also downgrading ACAI and XJT to In-Line from Outperform. The firm's top picks continue to be AMR and CAL, which are both rated Outperform/Attractive with its overall coverage of the airline sector at Attractive.
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