Sunday, January 17, 2010

Market Update 03.10

A late week selloff resulted in negative performances across most major indices. Particularly interesting is the recent underperformance of prior star sectors. The Nasdaq failed to make new highs on Thursday and was the worst performing major index on the week. The large contributor to this phenomenon was the sharp selloff in the semiconductor sector. After reporting earnings aftermarket on Thursday that the media characterized as "crushing estimates," Intel stock immediately skyrocketed higher (5%) in the aftermarket. But it quickly ran out of gas. It closed the afterhours session back where it began, opened Friday morning lower, and continued to fall all day, closing down more than 3% on its highest volume of the past two years. Textbook exhaustion reversal on good news.

Intel has been one of the darlings of the technical recovery, nearly doubling since its bottom in March. Its earnings have kicked off "better than expected" earnings seasons in most quarters, setting the bar for everyone else. They have reported strong sales to nearly all groups - business, consumer and emerging markets - suggesting that technological investment may be higher than aggregate numbers suggest. As I wrote in my Themes for 2010, Part 3 article on the economy, I challenged the consensus that a recovery was going to be led by the consumer/credit growth and suggested instead that it would eventually come from investment. Thus, Intel (along with IBM, QCOM, CAT, and other makers of productive capital) are my bellweathers for a legitimate recovery.

See below a comparison of the Semiconductors Index vs. the Dow Industrials.

Readers should also notice that two other important earnings releases (Alcoa and JP Morgan) also disappointed last week. Keep in mind that the year-over-year comparisons this quarter are totally wacky. Q4 of '08 was writedown central for most companies. So the actual performance will be more interpretive than usual, and thus more liable to the sway of human emotions. I suggest readers take the time this week to listen to some conference calls and try to glean some info based on tone and CFO confidence.

That's all for now.

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1 comment:

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