Replies to post #111 on Sector Investing

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Volume falls but the market rallies!

My commentary: The biggest thing in my estimation that should cause this rally to fail is lack of volume. Friday was a very real high volume turning point for the market but perhaps that will not become immediately evident. By next week it should be painfully evident to anyone who has not taken money off the table from the long side. JMHO and I definitely reserve the right to be completely and totally wrong.

Compare the volume Today to yesterday and Friday.

Today was much lighter. Here are the final figures:

 
 NYSE Volume:   1.28 bln...Adv: 2285...Dec: 1014 
 Nasdaq Volume: 1.78 bln...Adv: 2051...Dec: 1135

From Briefing.com: Tuesday was light on market catalysts, and the intraday price action showed it. Nonetheless, on a session largely driven by technicals, the major averages ultimately registered respectable gains. So from a technical perspective, the near-term outlook has improved on that late day buy interest.

Recall Tuesday morning we suggested the immediate bias would improve to the extent the index can reestablish a posture above 1619 on a closing basis. In the intraday chart below, you can see the index' response to 1619 area. Note the index touched an intraday high at 1618.6 on two distinct tests, before making its most pronounced move of the session in the final fifteen minutes. So at this point, the index is holding towards the middle of our original bias range spanning from 1619 to 1632.

Looking towards Wednesday, note the Fed's Beige Book is set for release during the trading day at 14:00 ET. Now more often than not, the details of that report come through as a non-event from the standpoint of immediate market impact. Nonetheless, the Beige Book has been known to spark reaction from time to time, which makes it radar screen material at the very least -- something to be aware of.

On the corporate earnings front, the calendar remains essentially empty. For a more detailed look at upcoming reports, please visit Briefing.com's Earnings Calendar and Economic Calendar. -- Mike Ashbaugh -- Briefing.com

4:34PM Microchip reaffirms Q1 revs in line with consensus (MCHP) 22.32 +0.01: Company reaffirms Q1 revenues of $157-164 mln vs Reuters Research consensus of $159.7 mln.

Close Dow +74.89 at 9,054.89, S&P +8.91 at 984.84, Nasdaq +23.70 at 1,627.67: An up open and very narrow trading ranges until a final half-hour push took the indices to their highs of the day...selected stocks making moves on news included General Motors (GM 36.30 +1.00) on reaffirmed profit guidance, Fannie Mae (FNM 69.87 -1.44) down on continued Freddie Mac concerns from yesterday, Micron (MU 13.15 +0.84) on positive comments at a tech conference, Boeing (BA 34.31 +1.14) on an upgrade, and Nokia (NOK 17.71 -0.25) on a mild warning on revenues...there were also sector moves...
the SOX (383.09 +4.25) semiconductor index rose despite Banc of America Securities downgrading a number of stocks...but overall, it was a rather listless day with not much volatility until that final push...bonds were hot again, as the 10-year note rose 23/32 to yield just 3.19%...bonds were helped when Fed Governor Donald Kohn said inflation was falling faster than the Fed's model expected...there is now talk that the Fed will cut short term rates 50 basis points (1/2%) at the June 25 FOMC meeting...volume started decent, but NYSE finished with just 1.3 billion shares changing hands...

a solid bounce as the indices recouped most of yesterday's losses, and the Dow closed back above 9,000...NYSE Adv/Dec 2285/1014, Nasdaq Adv/Dec 2051/1135

2:14PM Broadcom seen supplying Bluetooth components to Ford (BRCM) 25.90 +0.22: Fechtor Detwiler believes that BRCM may soon be supplying Bluetooth components to Ford. According to firm, Johnson Controls (JCI) is Daimler's lead provider for its Bluetooth based, in-vehicle phone system (which utilizes a BRCM Bluetooth chipset which gets somewhere in the range of $10 per unit). Firm's sources suggest that JCI has sealed a second major deal with Ford.

9:39AM Broadcom valuation appears stretched -- CIBC (BRCM) 26.15 +0.47: CIBC is pulling its price target and retracting its positive tilt toward the stock in light of recent 75% run since 4/1. While still expects a strong JunQ and positive outlook, believes valuation is getting a bit stretched.

9:11AM Adams Harkness downgrades semi equipment stocks : In addition to Banc of America's semi equipment downgrades (7:32), Adams Harkness downgrades AUGT to Buy from Strong Buy, downgrades AEIS, AMAT, ASYT, BRKS, ESIOE, ENTG, HELX, IFCN, MKSI, NANO, NVLS, and VSEA to Mkt Perform from Buy, and downgrades ATMI, KLAC, KLIC, NEWP, and VECO to Reduce from Mkt Perform; firm says a second half disappointment is quite possible given that inventories are building and demand remains tenuous, and firm thinks that the stocks will struggle to move significantly higher from their current levels as stock prices shift to earnings-driven valuations on 2004-05 earnings.

9:05AM LM Ericsson cut to Sell from Hold at Wells Fargo Securities (ERICY) 10.33: Well Fargo Securities downgraded ERICY from Hold to Sell citing concerns prospect of continued losses from operations and uncertain pricing and demand trends. The analyst believes the co should trade at approximately its book value of $5.13. Specific risks associated with owning the shares are its pure play on infrastructure, the co has to stay abreast of rapidly changing technologies, pricing falling and not being able to procure top talent.

8:53AM WFS downgrades NOK from Hold to Sell (NOK) 17.96: Wells Fargo Securities downgraded Nokia from Hold to Sell citing downside risk as significant and establishing a $12 price target. The analyst believes the co is appropriately valued at 16.0x FY04 EPS estimate of $0.75 per share or $12.00 with no positive catalysts for the co in the foreseeable future. Specific risks in owning the shares are described as financial risks of new mobile system orders being pushed out or if customers become insolvent, the costs associated with leading edge R&D and being able to recruit top talent.

http://finance.yahoo.com/q?s=^SOXX+AEIS+ALTR+AMAT+AMD+ASYT+ATMI+AUGT+BRCM+BRKS+ENTG+ERICY+HELX+INTC+...

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From Briefing.com: 10:05AM Dell Computer COO backs guidance despite SARS impact on China - Reuters (DELL) 31.13 -0.76: COO Kevin Rollins said that he stood by the co's financial outlook, despite the impact that SARS has had on the tech mkt in China. Overall, Rollins said that he does not see demand picking up, although he said that there is an improved sentiment about technology at the moment.

9:23AM Nasdaq technical levels : -- Technical -- From current levels, the index has notable initial support in the range of 1619 to 1621, followed closely by an additional floor ranging from 1611 to 1614. To the upside, look for initial resistance in the vicinity of 1630 to 1632 followed by a less significant level at 1638.

9:09AM CTI Molecular initiated with Mkt Perform at Wachovia (CTMI) 18.36: Wachovia initiates coverage with a Mkt Perform, as the co's near-term catalysts are more negative than positive; firm cites proposed Medicare cuts this July, 2004 ests that may need to come in, PETNet weakness and slowing growth in PET scanner placements, and a back end-loaded seasonal earnings pattern; firm sees a 6-12 month valuation range of $19-$22, and their DCF valuation is $15, reflecting the cash-hungry nature of CTMI's business model.

9:06AM Qualcomm: SARS impact more pronounced in wireless -- SG Cowen (QCOM) 33.63: In a comment this morning on QCOM, SG Cowen says it expects the SARS impact on wireless to be greater than other tech sectors, and likely more than a one-quarter issue. Says that inventory exiting Q1 is abnormally high and companies with longer lead-times (13 weeks for QCOM) will likely see impact in Q3 instead of Q2. Firm expects Q3 guidance for sector to be negative.

8:58AM Oracle upped to Buy from Hold at Wells Fargo Sec (ORCL) 13.02: --Update-- The upgrade is based on fundamental changes and improvements in the co's competitive and strategic positioning. After many years and attempts, believes Oracle finally has effectively expanded its product story from largely a database and technology tools company to a highly integrated software solutions company. As a result, believes this change significantly enhances co's growth potential and competitive positioning versus IBM and Microsoft, measurably expands the overall market opportunity, and provides customers a compelling cost of ownership and ROI argument. Firm's new 18-month price target is $18.00.

8:46AM Taiwan Semi downgraded at Merrill Lynch (TSM) 10.39: Merrill Lynch in Asia downgrades to Neutral from Buy based on valuation, as the stock has exceed their $8.90 target; also, the lack of forecast upgrades from either fabless or OEMs raises the risk of a correction.

8:35AM LM Ericsson cut to Sell at Fulcrum; target $7 (ERICY) 11.35: Firm expects wireless operators to continue to reduce capital investment throughout 2003 and into 2004 resulting in a 24% decline in Ericsson's revenue in 2003 and an 11% decline in 2004. Fulcrum's $7 target is based on 0.9x revenue and would imply 38.9x consensus 2004 EPS.

8:00AM Silicon Labs estimates, target cut to reflect negative wireless trends (SLAB) 27.30: Morgan Stanley reduces estimates given the negative trends in the wireless handset markets. Firm's 2003 est goes to $0.90 from $0.95 and 2004 is lowered to $1.10 from $1.20. Given the lower estimates, firm reduces price target to $45 from $50. Firm reiterates its Overweight rating on view that valuation remains attractive.

7:51AM Merrill Lynch says biotechs poised to move higher; CSFB raises targets : Merrill Lynch says the recent bout of profit-taking is probably over and biotechs are now likely to move higher; firm cites the following factors: 1) money flow into mutual funds has turned increasingly positive while new stock issuance has remained minimal, 2) the FDA has become more accommodating, 3) the recent spat of positive news flow should continue, 4) valuations remain well within the historical range, and 5) window dressing into the end of the qtr should bode well for the group. Separately, CSFB raised their price targets on AMGN, IDPH, GENZ, BGEN, MEDI, DNA, HGSI, MLNM, NBIX, ICOS, MYGN, and GILD.

7:44AM Semiconductor sector cut to In-Line from Attractive at Morgan Stanley : While Morgan Stanley believes that industry's fundamentals are improving, firm also thinks the sharp share price rise in recent months and the potential that near-term earnings risk may increase suggest the reward-to-risk relationship is becoming less favorable.

7:40AM Texas Instruments cut to Sell from Hold at Deutsche; price target cut to $16 (TXN) 20.39: -- Update --
7:25AM Texas Instruments downgraded following warning (TXN) 20.39: -- Update -- Banc of America Sec is downgrading stock to Neutral from Buy after co guided Q2 sequential rev growth to the 5% range from previous forecast of 7%. BofA is lowering its 2003 est to $0.34 from $0.38 and 2004 to $0.75 from $0.80. (Briefing Note: An hour before the close yesterday, Briefing.com reported market chatter that TXN would warn ahead of today's presentation at the Bear Stearns conference).

7:14AM IBM added to Merrill Lynch's Focus List (IBM) 81.71: Merrill Lynch adds IBM to their Focus List, saying they would use the weakness caused by the SEC investigation to add to positions; although the SEC will likely look into rev recognition practices outside POS terminals, firm would be surprised if the findings have a significantly negative impact on the shares from here; also, concerns about offshore services are overdone, and surveys indicate that IBM should gain share in most product areas. Maintains $97 target.

7:07AM Cymer guides Q2 revs below consensus (CYMI) 32.64: Company lowers Q2 revenue guidance to $58-61 mln (approx 12% lower than previously guided revs of $67.6 mln) vs Reuters Research consensus of $67.3 mln due to ongoing slowness in semiconductor industry. According to CYMI CEO, "As a result of this revenue shortfall, we now expect gross margin to be in a range of 13 percent to 17 percent for the second quarter, in contrast to 17 percent to 22 percent in our April guidance." Co says visibility remains limited, and volatility remains high.

6:58AM European Summary : European indexes showing solid gains despite lower guidance from Texas Instruments (TXN) last night. Infineon Technologies (IFX), Europe's second-biggest chipmaker, gained 3.4% after Smith Barney raised its recommendation for the shares to Outperform from In-Line. The world's largest mobile phone maker Nokia (NOK) stuck to its full-year global handset market growth forecast, and said it was on track to meet its 3G market share target for its networks unit... UK +0.8%, Germany +0.93%, France +0.97%.

http://finance.yahoo.com/q?s=^SOXX+ALTR+AMAT+AMD+BRCM+CTMI+CYMI+DELL+ERICY+IFX+INTC+KLAC+LLTC+LSCC+L...

http://finance.yahoo.com/mp/q?tqnt

RtS