Intel in Slide

This is not good. Anytime a market leader warns of a revenue shortfall, serious questions get raised. The bears come out of the forest and the market falls. Intel has added insult to the market's injury at a time when it was just beginning to appear that the Nasdaq composite was beginning to form some bullish support.

Maybe, just maybe, the market analysts can put on spin on this news and Intel could come out smelling like a rose. Hey, it could happen - the precedent has been set. Remember March 21st, when Micron Technology (MU) missed their earnings estimates by 23 cents? The analysts lined up behind the stock with positive comments and it gained over $5 on bad news. In fact, Dan Niles of Lehman Bros., the consummate chip defender, was touting the prospects of Intel just this morning. Maybe he'll be back Friday morning.

That may be a bit much to hope for, but actually, the bar was set fairly high for Intel. Even though the company announced that they would miss estimates because of sales weakness in Europe, they still expect overall revenues to grow by 3 to 5 percent in comparison to the second quarter. Annualized, that would be 12 to 20 percent. Over the past 5 years, Intel has averaged approximately 20% growth and over the trailing twelve-month period, they only managed a 12.9% growth rate. So, overall, it doesn't appear to be that bad, but we'll see just how far they miss their $.41 per share earnings estimate when they report on October 17th.

The effect this news will have on the market seems predictable. Questions have been raised about the growth of the semiconductor industry lately, so this won't help matters. Since Intel makes chips for the PC industry, the growth of hardware and software makers will also come into question. It'll be an interesting Friday for technology stocks. Come on analysts. Prop this thing up!

Thursday's Data:

The Nasdaq Composite (COMPX) retraced to 3828, a loss of 68 points on heavy volume of 1.593 billion shares. Advancers trailed declining issues 15 to 24.

Dow stocks (INDU) had a good day, up 77 points to close at 10765. Leading sectors on the INDU were retail and drug stocks, but help from came Johnson and Johnson and 3M also helped the index with their comments about future growth. On the NYSE exchange, volume was heavy at 1.086 billion shares. Breadth on the exchange was very negative, in spite of the gain on the INDU. Advancers lost to declining issues 11 to 17.

On the S&P500 index, the 200-dma is still holding. A 2-point decline to 1449 still has the index just above support.

Over in the treasuries, bond prices rose in response to falling crude oil prices. November crude fell $1.24 to close at $34.00, in response to calls from Al Gore to release the nation's crude oil reserves to reduce fuel and heating costs. The U.S. oil reserves are meant for use during a crisis or a national security threat, but in an election year, small details like those get overlooked. The ten-year bond now yields 5.84 percent and the 30-year bond is at 5.90 percent.

Stock and Sector Moves:

Today's leading groups were the Pharmacuetical index (DRG +3.5%) Healthcare (HCX +3.3%) and Retail (+3.6%). Obviously, it was a day to allocate money into defensive issues.

Leading losers were semiconductors (SOX -4.4%) and oil service stocks (OSX -2.7%). It is almost a given to expect that semis will lead this list Friday as well.

Fiber stocks had a good day (during regular trading hours at least) after Salomon Smith Barney gave buy ratings to Corning (GLW), JDS Uniphase (JDSU), ONI Systems (ONIS), Ciena Systems (CIEN), Sycamore (SCMR) and Corvis Corp. (CORV). Many of these same stocks were suffering from the Intel news in after hours trading.

Performing well recently have been wireless stocks, maybe as a result of upgrades to Qualcomm (QCOM). Phone.com (PHCM) had a breakout surge of 8.38 points and Adaptive Broadband (ADAP) soared (at least initially) on news that they received a $100 million contract from Fuzion Wireless. Unfortunately, ADAP gave most of it back to close up only 1.31 points.

In earnings news, Morgan Stanley Dean Witter (MWD) missed earnings estimates of $1.18 per share by 9 cents. This news beat up MWD by 6.62 points. The Brokerage group, which has had quite a run during the past few months and is now vulnerable to profit taking, took a 3.33% hit on the XBD index.

Reporting after the close was Internet incubator company CMGI, which lost $2.17 per share, beating estimates of a $2.45 per share loss. CMGI was off about $2 in after hours trading to $34.12.

Also reporting was software maker Liberate Technologies, beating estimates of -.22 per share with a report of -0.09 per share.

For Friday:

Wow! No earnings, no economic news for Friday. Guess they are saving themselves for next week, when Existing Home Sales, Consumer Confidence and Gross Domestic Product will all be reported. With the recent concern growing over the economy, these will all be closely watched.

Moving to the charts, the NASDAQ composite was (before the Intel news) looking fairly positive in spite of the 68 point loss. The COMPX is on the 38% retracement line and holding the 252-day moving average, which is equivalent to one year's worth of trading data. Over on the NASDAQ 100 chart, the 252-dma was our support on Monday and Tuesday when things were really ugly. All bets are off now though. This Intel news is sure to test that support level again. If it fails, next support is 3500 on the NDX chart.

The INDU traded on an inside day after 6 days of weakness. Normally, I would say that the Dow industrials may now have some hope of moving higher, but the Intel news will affect all the technology components of the index PLUS all the big conglomerates which have European exposure. This may get ugly. Support is 10500.

Looking forward, the most likely scenario for Friday is down on both indexes. Like I said, it will depend on the spin that analysts put on the Intel news. This is a real time of uncertainty, what with high energy prices, slowing economic numbers, and overseas currency weakness. Since we are in the middle of earnings warning time, which precedes the wave of earnings reporting to come in October, hopefully, this is a good excuse to pick up stock at a discount. As we all know, jittery investors sell first and ask questions later. When the smoke clears from all this, we are likely to find that we are still in an expanding economy with good growth prospects - but for now, things are likely to stay hazy at least for a few more weeks.

Good Luck!
Steve Pekarek
Editor

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