by Barry Ritholtz
June 7th, 2001
Yesterday was D-Day -- June 6, the anniversary of the Allied invasion of Normandy. In less than a year after that brave and costly assault, the war in Europe was ended.
That day on the beaches of France had such a huge impact on subsequent world events that the phrase "D-Day" has worked itself into the modern lexicon: It now means "any day of great significance within a larger battle." I wonder how many people casually use that phrase without understanding its gravity?
Using that definition (and with no disrespect to those who fought and died that day), today may be a D-Day of a different sort.
After the closing bell, Intel will host a mid-quarter conference call. Many have held this to be the seminal tech event of the quarter. I think that viewpoint, pounded on CNBC and elsewhere -- is much ado about nothing.
Maybe even the Intel call will be a win/win situation.
Assume Intel says bad, bad things -- they announce that their numbers are slow, PC sales are weak, their investments are off -- they even admit to a little channel stuffing (using ground instead of air shipping to jam an extra 10 days of inventory into the pipeline). Assume they guide revs and EPS downwards.
So what?
Is there really anyone left in the world that would be surprised by that? Let's face it, the PC business sucks; INTC has warned the last 3 consecutive Qs; Hewlett Packard (HWP) stated yesterday that business was slow, and that sales in Asia and Europe were softening. AMD has reiterated their expectations that the PC business will not pick up until the end of the year -- although for AMD, it was said with a smirk, as they have been taking marketshare away from INTC for several Qs now.
So the $100 question is whether bad INTC news really shocks anyone. Would it be such a devastating surprise to the market, thereby causing a nasty sell off? I believe the worst of the bad news has worked itself in. INTC's chart shows a long base going back 6 months, hanging around 30 but never really getting through it with any conviction. That's not the sort of pattern one expects to see in a stock vulnerable to a preannouncement shock.
Courtesy of bigcharts.com
Within the bigger picture, many are expecting Intel to be the debacle that starts us back towards a retest of the April lows. Indeed, every nonsensical reason for this move off the bottom 2 months ago being a "false rally" has been trotted out since April. Problem is, most of these rationales fail close analysis. "Its only a short covering rally" was one refrain (see last week's comments). I was surprised at how many people (including a few I respect) who attributed Tuesday's strong move as a result of the Selectnet System going down for 30 - 40 minutes. That prevented stock from being sold into the market, they said, especially from wirehouses and hedge funds.
Sorry, but that's just silly. If it prevented sells, it also prevented buys from getting executed. There are also dozens of ways to sell stock -- Instinet and Island being the first that come to mind -- when Selectnet goes down. Redi, Brut, and Brass are also functional ECNs available to market makers to move inventory.
So maybe INTC shaves expectations down a bit. Maybe they say a few ugly things. That's not really so awful, as it gives The Street the "Wall of Worry" it needs to climb to go higher.
Just look at Sun Microsystems -- thanks to a flip flop from the Goldman Sachs analyst who covers SUNW, we had a meaningless back and forth in the market. First the GS analyst expects SUNW to preannounce on light revenue -- which they did (good call); Then, one week later, she observes that "the worst effects of Sun's "missteps" were over, and that business was stabilizing.
That much of a fundamental difference in a week?!? Puh-leeze. Hey, thanks for nothing . . .
But the result of this was a market gyration which extended the pullback to nearly 10% on the Nasdaq. Though many predicted dire consequences, the retracement sent us back to key support levels, which held. The sell off sent the short term oscillators to an oversold level. The good news is that several technical indicators are now confirming (most notably the Arms Index) an intermediate oversold "buy" signal. This suggests that the strong rally Tuesday -- followed by only modest profit taking yesterday -- may be the start of something more meaningful.
What does all this technical-babble mean? It strongly suggests that any positive surprise could catapult the market strongly upwards. Good news out of the MSFT litigation? War averted in the Middle East? A few decent earnings calls out of a tech bellwether? Even weak earnings with positive forward looking comments might be enough of a catalyst.
If Intel only says "mediocre" things - or (Heaven forbid!) if there is even so much as a ray of sunshine in their conference call -- then we could test, and possibly break through the 2300 overhead resistance on the Nasdaq.
Such a move -- especially if accompanied by stronger trading volume -- sets up the next leg higher to 2480, or possibly even 2550.
But that 2300-2330 level is crucial. A tepid failed attempt there could send us right back to 2050 - 2120.
But I am not flippant. We are still vigilant in looking for signs that the internals are breaking down, that buyers are fleeing, that some valuation or money flow metric is way out of whack. But those signs have not appeared yet . . .
So the strategy we employ from here forward continues. Our diversified portfolio has done well, up 20% YTD. We watch the 2300 area on the Nasdaq, and if we fail to thrust through, we trim back tech positions (a small portion of our overall holdings) and look for better entry points.
We look at sectors reversing up from a downtrend, and add exposure as they rally. This has been working well, especially in energy, health care, tech and basic materials.
Meantime, we wait, we watch, we commit additional capital as appropriate.
Please feel free to write or call if you have any additional questions . . .
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Copyright © 2001 Barry L. Ritholtz, All Rights Reserved worldwide. May not be copied, stored or redistributed without prior, written permission.
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