Last year in October we should have known what was coming because the VIX was near 50 at the time. That was one sign of what turned out to be a good long term bottom. BPNDX was also outrageously low.
Those indicators are a lot different today.
Thanks for pointing out that the efforts taken here to share past insight from Briefing.com and other sources in conjunction with our own personal knowledge is more than worthwhile... it is essential to bettering our future investment returns.
From Briefing.com: Emotions were running high on Thursday, and understandably so, as America marked the second anniversary of the September 11 attacks. The country did so with memorial services across the land that were accented by tears, meditation, and a spirit of recovery.
Fittingly, the indices bounced back from recent losses to end the day with a gain. The technology sector assumed a leadership position in the advance, but it was clear in the relatively light volume (1.31 bln at NYSE; 1.76 bln at Nasdaq) that market participants had other things on their mind. Nonetheless, resilience is a word that was applicable to both our country and the stock market on Thursday.
On that note, IBM (IBM 87.92 +0.08) absorbed an initial blow from a Smith Barney downgrade that was an indictment of sorts of the CSFB upgrade earlier in the week. Similarly, the SOX Index rebounded from an early loss of nearly 2.0% and closed the day with a gain of 1.6%. Some bullish commentary out of Wedbush Morgan aided in the reversal of fortune as the aforementioned firm argued that profit leverage for the semiconductor companies is being underestimated and suggested investors buy short-term dips as it sees a cyclical recovery lasting into 2005.
Adobe Systems (ADBE 39.46 +3.07) was a focal point of support as its better than expected earnings report put a bid in the software group. In most cases, though, volume was below average daily levels. The attention to the anniversary of 9/11 and the specter of Oracle's (ORCL 12.98 +0.13) earnings report before the open on Friday most likely curtailed the buying efforts. For a preview of the Oracle report, be sure to visit Briefing.com's Story Stocks page. It will be worth a read, because Oracle's news should dictate the tone of trading on Friday along with the Retail Sales report.-- Patrick J. O'Hare, Briefing.com
6:00PM Thursday After Hours price levels vs. 4 pm ET levels: In the wake of today's two-year anniversary of the attacks of September 11th, the after-hours is unusually quiet and uneventful. Currently, the S&P 500 futures are trading 0.7 points below fair value of 1016, while the Nasdaq futures are 4.5 points above fair value of 1351.
Given that there is no news of note in the after-hours session, it's worth taking a look at tomorrow's events. The highlight on tomorrow's Earnings Calendar is the report from tech-giant Oracle (ORCL 13.11 +0.13). According to Reuters Research, analysts are expecting ORCL to check in with earnings of $0.08 on revenues of $2.14 bln. This compares to last year's earnings of $0.07 on revenues of $2.03 bln for the same quarter and would shape up for a 32% drop in revenues sequentially (4Q03 revenues were $2.83 bln). For more thoughts on the potential impact of ORCL's earnings, make sure to visit Briefing.com's Story Stocks page.
On the Economic Calendar, look for reports such as the Producer Price Index and Retail Sales for July at 8:30 ET and the preliminary reading for the August Michigan Sentiment report at 9:45 ET. The market expects the Producer Price Index to check in with a reading of 0.3% versus the prior reading of 0.1% and the Briefing.com estimate of 0.4%; core-PPI (ex-food and energy) is expected to come in at 0.1% versus the prior reading of 0.2% and Briefing.com's expectation of unchanged. The Retail Sales report is expected to check in with a reading of 1.5% by the market versus the prior reading of 1.4% and Briefing.com's estimate of 1.8%. For more information on this report make sure to visit Briefing.com's Story Stocks page. Last, but not least, the market is expecting the Michigan Sentiment report to come in with a preliminary reading of 90.4 versus July's reading of 89.3 and Briefing.com's estimate of 91.0.
For more detail on these, and other developments, be sure to visit Briefing.com's In Play, Earnings Calendar, and Economic Calendar pages.-- Victoria Glikin, Briefing.com
4:17PM Oracle Preview (ORCL) 12.98 +0.13: It's no surprise that Oracle Corporation (00C0) plans to report Q1 results tomorrow, but what is a revelation is that the world's No. 2 software maker will post its earnings, not after the close, but before the market opens (for the first time in recent history). And, if more clarity surrounding Oracle CEO Larry Ellison's vision doesn't come to fruition, frustration could linger around the corner.
Sure, ORCL shares are up 7% over the last 7 days and have gained roughly 16% during the past month. But if Oracle's bottom line merely matches analysts' estimates of $0.08, like it did last year at this time, then the stock could get hit even harder than when it posted Q103 EPS of $0.07. Even though earnings were in line with the consensus, investors left shares trading 13% lower by the end of that week.
Note that the company actually missed on the top line at that time, generating Q103 revenues of $2.03 bln (a year-over-year decline of 10.5%) versus a Reuters Research estimate of $2.07 bln. This quarter, analysts expect revenues of about $2.14 bln, about 32% lower than the Q403 actual of $2.83 bln. Of the 37 analysts that cover Oracle, all but nine expect the company to post Q104 earnings of $0.08 per share. And of those nine, eight analysts expect ORCL to report EPS of $0.09, above the consensus.
Either way, meet or beat, our view is that Oracle is stuck between a rock - software behemoth Microsoft (MSFT) - and a hard place - enterprise software leader SAP AG (SAP). In fact, even if the company's hostile $6.3 bln bid for rival PeopleSoft (PSFT) succeeds, some analysts have said that ORCL will still be less than half the size of SAP. As a result, if Oracle doesn't diversify its maturing database revenues sooner rather than later, with more value-added applications in areas such as the growing enterprise software space, there's a possibility that Ellison's dream of staying on top could come down to this quarter's bottom line.-- Brian Duhn, Briefing.com
3:29PM Nanometrics tgt raised to $21 from $14 at Oppenheimer (NANO) 12.76 +1.62: --Update-- Firm reiterates its Buy rating and raises 12-18 month price target to $21 from $14 and its near-term tgt to $14 from $10. In the past week, co has announced three new products which firm believes will increase co's standalone and integrated metrology growth potential. With estimated 60% margins for the new 9010 and 9300 systems, Oppenheimer is raising its CY04 est to $0.15 from $0.06 and CY05 to $1.00 from $0.57.
2:33PM NANO Rumor : Nanometrics Inc (NANO 13.25 +2.11) trades up 19% on 6x avg volume amid rumor company may be bought by AMAT.
12:31PM Buy dips in Semis, profit leverage underestimated -- Wedbush Morgan : According to Wedbush Morgan, macroeconomic and industry fundamentals suggest a cyclical recovery lasting into 2005 and that profit leverage is underestimated. Firm also believes that management caution in capital spending creates a potential capacity shortage by mid 2004, leading to the next boom in profitability. From a valuation perspective, believes that street EPS estimates are simply too low for 2004, rather that valuations being too high. Firm suggests that investors overweight the sector and buy short-term dips. Firm's current favorites among the various segments are: INTC, MXIM, XLNX, MRVL, and TXN.
9:08AM UBS starts ADI, LLTC, and MXIM with Buy ratings : UBS initiates coverage of ADI with a Buy rating and $50 target; firm believes that the co will have the ability to improve margins over the next several quarters, enabling earnings growth of roughly 50% on rev growth of roughly 20%. Firm initiates coverage of LLTC with a Buy rating and $52 target, saying they expect the co to show the fastest rev growth of the high performance analog group. And firm initiates coverage of MXIM with a Buy rating and $51 target, saying they expect the co to continue to drive growth with a wide range of new products.
2:31PM Retail Sales Growth Accelerates ; August retail sales are expected to be the strongest since the post-blizzard surge in March. More impressive is the steady growth acceleration given the added spending power provided by the June mortgage refinancing boom and the July tax cuts. Extremely strong Q3 consumer spending will drive the strong pace of GDP growth which we currently estimate near 6%.
Briefing.com expects retail sales to rise 1.8% in August after the strong 1.4% July gain. The market looks for a slightly weaker 1.5% growth. The chart below reflects the strengthening growth since April. Consumer durable goods purchases lead the charge as auto sales are expected to jump 5%. But the strength is more broad-based as building materials, furniture and electronics have averaged a 1.3% gain over prior three months in response to the booming housing market. Historically low mortgage rates will keep the housing sector active over the intermediate term despite the rapid rise from the half century low.
Nondurable goods are also expected to show a healthy rise given higher gasoline prices and strong back to school merchandise sales. An expected 0.8% rise in ex-auto sales leaves a three month average of 0.9% which better reflects the broad, underlying strength of consumer spending. Add on the steady growth of service spending for the personal consumption expenditures which drive 2/3 of GDP. Strengthened consumer spending, the acceleration in business investment and the resulting inventory rebuilding will provide a powerful lift to economic growth over the second half and 2004.
-- Tim Rogers, Briefing.com
2:18PM Market Musings : The institutional trading floors have approached this week somewhat marred mentally by the macabre events on September 11 two years ago. As a result, the markets have been somewhat hesitant to maintain the same upwards momentum in its most volatile sector of technology. A perfect example is TXN's announcement of revenue guidance to the high end of previous guidance and the stock traded down, as did the rest of the major indices on the eve of 9-11. However, today's floor traders are much more optimistic as we have moved past the perennial ceremonies and observances associated with this tragic day. Traders appear to now be focused on maintaining a gallant effort to provide a plus close. As such, chatter is light with no real market moving events to report with today's trading keeping technical analysts hard at work.
Rumors, Gossip and Innuendo
No reports today of trading errors causing major tidal waves to the indices. Most desks are breathing a sigh of relief, as pricing seems to be driving volume today for a change. As mentioned in In Play's "Floor Talk", we continue to hear AMT is potentially doing an offering tonight. Given Covad's announcement with AT&T to offer bundled DSL (see In Play 12:32pm), we are hearing one sell side desk suggest this development as a positive for NTPA and CNXT, which are pure players in the digital subscriber lines customer premises equipment. However, it is important to note that COVD uses a private modem maker. SNIC, which has been trading down all day, has received some rumor fanfare suggesting the quarter is tracking way ahead of expectations to the tune of $0.10-$0.12 per share with Reuters Research earnings estimates of $0.08 per share.
While market chatter may be somewhat light, analysts continue to try and put some fire under the markets for more momentum. This morning witnessed UBS come out and play the getting in front of the high-end analog semiconductor company game with Buy ratings on MXIM, ADI and LLTC on the heels of Wednesday's profit taking. Also, Smith Barney downgraded IBM while we have been hearing intraday Goldman Sachs advising to buy on weakness. In speaking with our analyst contacts, the feelings continue to be a "wait and see" attitude as we head into the Sept/Oct timeframe. Analysts continue to have contentious views on the nature of the ratings game as the emergence of Buy ratings continues to be prevalent themes on most reports. In addition, we are also concerns over analysts justifying increased price targets on stocks based on larger earnings multiples going farther out into their models.
For any questions, comments or concerns, please send your inquiries to -- John Meza, Briefing.com
11:43AM Ratings Briefing - IBM : It's rare that analysts go head-to-head in their research notes, but this morning, Smith Barney analyst Richard Gardner takes CSFB analyst Kevin McCarthy to task in his bullish call on IBM (IBM 87.30 -0.54) on Monday. McCarthy upgraded shares to Outperform from In-line, saying the company was an 'ideal late-cycle tech spending recovery play due to the complexion of its installed base.' He also cited his belief that tech spending is about to experience a meaningful recovery, and used the combination of both reasons to raise his FY04 (Dec) EPS estimate to $5.10 (consensus of $4.89) from $4.80 and stock price target to $102 from $87.
Today, Richard Gardner has fired off a strong response to McCarthy's upbeat claims, stating that Smith Barney 'disagrees with the assertion that IBM is the ideal late-cycle play.' Gardner notes that most of the company's hardware revenue comes from legacy platforms (mainframe, AS400, proprietary UNIX) which should benefit less than Windows and Linux as new application deployment becomes a more important driver. He also questions the Street's expectation of 9% growth in FY04 services revenue following a year in which bookings are expected to be down. Given a lack of sales drivers, Gardner advises investors to take profits and downgrades IBM to Underperform from In-Line. He also maintains his $85 price target and FY04 EPS estimate of $4.79.
While analysts have assumed more aggressive stock opinions in the wake of the tech bubble's bust, nothing has paved the way for a showdown of this magnitude. Smith Barney and CSFB's debate over IBM's intermediate-term prospects essentially boils down to the same question that has been plaguing the tech sector since 2001 - whether IT spending is on the cusp of a substantial recovery, or is still chugging along at sub-par rates. While Briefing.com would agree that end market demand should pick up on the heels of a strengthening economy, we would also contend that the market has priced in a good deal of this turnaround. Sentiment has, in some instances, outrun fundamentals.
Consequently, we expect Smith Barney's reiteration of the same concern to act as another restraint to IBM's upside movement. Shares have been stuck within $80-90 for the better part of the last ten months, with the upper end of the range representing a key area of resistance since April 2002. As the market is entering what looks to be a consolidative stage, we would not be surprised to see Big Blue's stock range-bound over the near-term. During its Q3 (Sept) conference call, IBM will need to show evidence of a significant increase in services' bookings - that will carry over into FY04 - in order to boost the stock's prospects of holding above the $90 mark. -- Heather Smith, Briefing.com
10:41AM Ahead of the Curve: Microsoft (MSFT) 27.79 +0.24 What motivates the creators of viruses? Most people view the viruses as simply technological graffiti, written by immature adolescents. While there are certainly virus-creators that fit this profile, a deeper protest is the source of many viruses, and the reason is generally not spoken in public. Many viruses are protests against the imposition of industry standards by Microsoft.
Nearly every major virus exploits a weakness or security hole in a Microsoft product. There are virtually no viruses that infect Linux operating system weaknesses or non-Microsoft application products. The attack is against Microsoft in particular. Generally, the motivation, in our opinion, is that programmers resist the continual and growing attempts on the part of Microsoft to force programmers to use 100% Microsoft technology and programming philosophies when building systems. This imposition is a technical, not financial, exploitation of the monopolistic position, and is resented on the part of some programmers.
These resentful programmers view Microsoft much like an evil empire as depicted in Star Wars and they view themselves as Luke Skywalkers who find the hidden "entrance" into the death star. If you remember the first Star Wars movie, the death star is destroyed by careful examination of the plans, after which a "security" hole is found. A missile is launched with precise determination into a ventilation shaft, which heads into the nuclear core of the battle ship and destroys it. The viruses are these programmers deluded metaphors for that missile.
The irony, of course, is that the damage is done primarily to customers of Microsoft, and not the company itself. The attempt is to smear the reputation of Microsoft products, but since few in the media really understand this purpose, the message is not carried by the media. With this explanation, we are not trying to condone or justify the viruses in any way - they are as disruptive to us as to anyone. We think generation and propagation of a virus should be criminally prosecuted, if the creators can be caught.
Do viruses create a cause of concern on the part of Microsoft investors? Is it a threat to the Microsoft business model? Despite the tremendous amount of wasted time that viruses cause, we do not think it has a material affect on Microsoft business. From that perspective, viruses directed against Microsoft products are not in the same category as Tylenol-tampering, for example. Nevertheless, it would be better for everyone if viruses, particularly email based viruses, could be eradicated, but the prospect seems unlikely for the time being. After all, as we all know, it is pretty hard to eradicate rebels who believe themselves totally justified. - Robert V. Green, Briefing.com
9:23AM The Technical Take : The recent mild negatives noted before the open yesterday hinted at a minor slowing of momentum and some limited selling pressure in the form of few distribution days (declines on higher volume) but no strong indications that the big money institutional investors were stepping away from the table. While Wednesday did develop into a clear win for the bears in terms of the overall performance as the market and sector indices posted sizeable broad based losses, volume declined at the Nasdaq where the most out-sized losses were seen (semi -5.2%, networking -5.1%).
Obviously we don't ignore the negative price action just because it came amid lower volume at the Nasdaq (NYSE volume was higher) especially taken in conjunction with the other concerns (low volatility, seasonals, top heavy technicals). However, the market was due for a period of consolidation in the wake of the recent daily/weekly winning streak.
Nasdaq Composite: The tech dominated index ended below its short term trend indicating 20 period exp mov avg on Tuesday and as we indicated, without a reversal back above, it was vulnerable to further downside forays. Yesterday's action saw it push below its 50 period simple mov avg for the first time sine Aug 26 and close below this avg for the first time since it confirmed the upside reversal on Aug 12. As the chart below shows we now have seen the inverse of that develop.
To view the remainder of the Technical Take see the Stock Brief.
Send suggestions, comments or questions to -- Jim Schroeder, Briefing.com |
