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Mixed Retail

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The Index of Leading Economic indicators rose 0.3% in July, in line with economists' expectations, but stocks are having trouble rising on the news. The Dow is down 7 points, and the Nasdaq is lower by 3 points.

The Networking Index (NWX.X), down 2.68% today, is leading the decline after Lehman Brothers downgraded shares of Ciena (CIEN). Analyst Steve Levy said, "even a after a precipitous decline in the share price we do not see shares providing any reasonable return for at least the next six months and believe that further downside is possible." I guess they were correct, since the stock is down $1.

The Retail Index is one of today's top sectors, up 0.42%, after a mix of news. Home improvement retailer Lowe's (LOW) reported better than expected earnings, on a 16 percent increase in revenues, due mostly to strong appliance sales. The company is expecting revenue growth of 20% in third quarter. The stock is up 86 cents.

But according to Barron's, even strong performance isn't enough to support electronics retailer Best Buy's (BBY) P/E multiple of 34. Barron's also raised questions about Best Buy's ability to grow through acquisition after the company purchase of Canadian chain, Future Shop. The stock is down $1.42 today.

In yet even more retail news, Toys R Us (TOY) posted a loss of 15 cents a share, which was in line with consensus estimates. But the company reaffirmed its full-year guidance, and is expected to be profitable again by the fourth quarter.

Japanese telecommunications maker Furukawa Electric will sell 15 percent, or 19,319,000 shares, of its holdings in JDS Uniphase (JDSU) to fund its acquisition of Lucent Technologies fiber optic business. JDSU is down 15 cents, and Lucent (LU) is up 13 cents.

Ad revenues continue to decline. McClatchy Newspapers (MNI), which publishes 11 daily newspapers and 13 non-dailies, reported a 3.8 percent drop in ad revenue.

It looks like besides networking stocks, Internet, biotech, and software stocks are going to be hurting the Nasdaq this morning, but semiconductor stocks are trying to minimize any damage. Banks, drugs, and healthcare are trying to help retail stocks move the markets higher, but no sector is up over 1 percent.

Jeff Canavan

Conexant Systems upgraded at CE Utenberg Towbin

This morning, shares of Conexant Systems (NASDAQ:CNXT) were upgraded to "buy" from "neutral" at CE Utenberg Towbin with the firm setting a price objective of $15. Analyst believes "the stock offers a defensive way to play a potential broad based end market recovery."

Conexant Systems Chart - $0.50 box

The point and figure charts seems to give some credence to today's upgrade and the bullish vertical count of $17 from the point and figure chart also gives hint that the stock has potential to reach the $15 level. Relative strength for shares of CNXT have been improving as it relates to the S&P 500. First sign of trouble for CNXT would be a trade at $8.50, a double bottom sell signal.

Jeff Bailey
Senior Market Technician

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