From Briefing.com: The same bad mood that has weighed on the market for the last few days hung over the early action again this morning with the Nasdaq Composite bringing its two day slide to more than 4% as the semi, Internet and software sectors continued to pace the way. However, in similar fashion to the breakdown after a solid upside extension on Friday, the index staged a sizeable intraday reversal to finish the day in the black.
The market ignored the early round of stronger economic data (Durable Goods, New Home Sales) with some focusing in on the string of declines in current expectation component of the Consumer Confidence report as the reason for the decline. On the flip side participants cited today's afternoon decline in interest rates as a help in the turnaround, as well as short covering. However, it is also likely that the recent thin, summer/pre-holiday trading conditions played a role as it did in the retreat off last week's high. There is an old adage on the Street for any situation and in this case the one that says 'you should never short a dull market' applies. It simply means that lower volume declines can be quickly reversed.
Choppy lower volume action with extended periods of tightly confined trade may persist tomorrow given the holiday staffed trading desks and with no data to trigger even a limited response. As for near term technical levels of interest, the Nasdaq Comp made its stand today at congestive support from July in the 1740/1737 area. Standing in the way initially on the upside are resistances at 1774/1776 (50% retrace of recent slide/July high) and 1783 (62%, Aug 21 high). Support of interest is at 1758/1756 which marks previous congestion, the 20 period exp mov avg -- note below the important daily directional clues it provided over the last three days-- as well as the 50 period mov avg.
6:16PM Tuesday After Hours price levels vs. 4 pm ET levels: The same ennui that has plagued the market over the past three sessions is present in the after hours, where the S&P futures, at 996, are flat with fair value, and the Nasdaq futures, at 1310, are also flat with fair value. A small batch of mostly better than expected quarterly reports has done little to lift investors' spirits.
To begin, supplier of analog and mixed-signal semiconductors Semtech (SMTC 19.88 +1.44) topped the Reuters Research consensus EPS estimate by a penny, at $0.10, in its Q2 (July) report. Revenues fell 14% from the year-ago level, to $44.6 mln, but gross margins expanded to 57.3% from 56.5% in Q1. Based on Q2's strong order rates, Semtech estimates that net sales for Q3 will be up 4-6% sequentially, and EPS will be $0.11 (consensus of $0.11). As a result, shares of SMTC have soared 8% in the extended session.
Likewise, shares of H&R Block (HRB 41.74 +0.49) have also traded higher following the company's better than expected Q1 (July) report. EPS rose to $0.06 from $0.05 in the prior year period, and exceeded the consensus estimate by an impressive $0.05. Revenue jumped 15% to $494.8 mln from $431.4 mln, due in part to an 11% increase in revenues of its mortgage business. Consequently, H&R Block posted a profit, unlike other Q1s when the seasonal nature of the income-tax preparation segment has hurt the company.
Turning to the retail space, Dollar Tree (00C0 37.45 +0.22) beat the Reuters Research consensus EPS estimate by a penny - at $0.25 - in its Q2 (July) report and raised its FY03 (Jan) guidance. Based on above-plan first-half results and the addition of Greenbacks, Dollar Tree now expects sales and earnings growth to be at least 19% - above its earlier 16% growth forecast. Management also said Q3 (Oct) sales should be $665-680 mln (consensus of $675.3 mln), with the mid-point of that range equating to slightly positive same-store sales.
Additionally, Sears (S 43.65 +0.62) said that that its August comparable store sales were tracking ahead of expectations primarily due to strength in home appliances. The retailer credited the divisional strength to changes made in March that include more competitive pricing, an enhanced store shopping experience, and significant expansion in the selection of branded appliances.
Elsewhere, stock of Hughes Supply (HUG 37.02 -1.76) has weakened considerably following the company's Q2 (July) earnings miss. The wholesale distributor of industrial materials also warned for Q3 (Oct), saying EPS should decline by 7-17%, to $0.70-0.78 (consensus of $0.88) because of continued weakness in infrastructure and commercial construction, which accounts for over half of Hughes' revenue base. The company also said Q3 revenues should rise 4-5%, to $835-845 mln (consensus of $838.4 mln).
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar, and Guidance pages. -- Heather Smith, Briefing.com
Close Dow +22.81 at 9,340.45, S&P +3.02 at 996.73, Nasdaq +6.33 at 1,770.64: The Dow rebounded more that 100 points from its low early this morning, but ended with a gain that merely balanced out yesterday's loss of 31 points...the Nasdaq and S&P managed solid gains that may have erased the mild pessimism that had been evident since Friday morning...there was good economic news today, but the market paid little attention...
July Durable Goods News Orders rose a solid 1%, reflecting the second straight month of improved business spending, the Mitsubishi chain store index rose 0.2% for the week ended August 23 and is up 4.5% over the same week last year, July New Home Sales dropped from the record level of June but were stronger than expected, and August Consumer Confidence rose more than expected...still, that had no impact and the Dow was down 72 at 10:30 ET...the market was flat through early afternoon, then rallied...it coincided with a rally in the bond market, which probably helped some...there was also talk of short-covering, which can have a big impact on low volume days...but this may simply have also been a case of a few more buyers than sellers...
overall, market sentiment remains reasonably balanced, with the indices still near the upper end of the trading ranges of the past three months...Xerox (XRX 10.39 +0.85) got a boost from an upgrade, Intel (INTC 27.71 +0.47) bounced back after recent weakness, Siebel (SEBL 9.87 -0.23) was pressured from its comments about pricing pressures last night, and Toll Brothers (TOL 29.50 -0.12) dipped despite a strong earnings report...advancers edged out decliners, but volume was low and will probably stay that way through this week...NYSE Adv/Dec 1797/1431, Nasdaq Adv/Dec 1633/1517
4:38PM Semtech beats by a penny, ex items, guides Q3 in line, appoints new CEO (SMTC) 18.44 +0.03: Reports Q2 (Jul) earnings of $0.10 per share, excluding pre-tax charge of $6.8 mln or net-of-tax $0.07 per diluted share, $0.01 better than the Reuters Research consensus of $0.09; revenues fell 14.4% year/year to $44.6 mln vs the $44.9 mln consensus. Co also guides Q3, sees EPS of $0.11, vs R.R. consensus of $0.11, and revenues of approx $46.4-47.3 mln (based on 4-6% sequential revenue growth) vs an estimate of $48.5 mln. Co also promotes Jason Carlson, SMTC's President and Chief Operating Officer, to CEO effective October 6, 2003.
3:35PM SMTC -- Earnings Preview 18.30 -0.11: Semtech is scheduled to report quarterly results this evening with Reuters Research consensus EPS est at $0.09 and revs forecast at $44.89 mln. Several firms indicating that they expect SMTC to meet estimates. However, First Albany is expecting weak guidance and believes that Street estimates will come down. Firm believes that SMTC continues to lose market share in desktop PCs and graphics cards (which account for roughly 20% of revs).
1:00PM ThinkEquity believes Intel signals upgrade cycle is here, but prefers MRVL : ThinkEquity believes that Intel's pre-announcement signals that the upgrade cycle has already commenced, even if Intel won't confirm it. But, while firm would still buy a position in INTC as a bellwether stock, would favor stocks that have higher revenue growth (MRVL) or larger operating margin expansion (AGRA , TXN). Notes that MRVL's rev growth is forecast at 61% in 2003 and 35% in 2004, while both AGRA and TXN have better margin expansion opportunities. For INTC, even achieving prior peak margins would be about half the leverage versus these others; yet INTC is still trading at a 30-40% premium over these stocks.
9:39AM Taiwan Semi estimates, price target raised at Prudential (TSM) 11.32 -0.13: Based on firm's proprietary checks, Prudential Equity Group is raising its Q4 est to $1.675 bln from $1.625 bln given the improving wafer starts in the month of August over the month of July and expectation of continued sequential monthly improvement in September. Firm also raising 2004 est to $0.46 from $0.44 and increasing price tgt to $14 from $13.
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