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Durable goods orders fell 0.6% in March

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Stock futures have pulled back from their best levels of the session after this morning's economic data showed that March durable goods orders fell 0.6%, which was weaker than the 0.5% estimates of analysts. Excluding defense, orders for durable goods fell 1.2%. Both numbers were weaker than expected, but in the context of a very volatile series and three straight prior increases, the numbers don't appear to be a big downside surprise to traders.

Later today traders will get more economic data as New Home Sales are scheduled for release at 10:00 AM EST. Economists are looking for a number of 884,000 new home sales for the month of March.

S&P futures currently trade higher by 2 points at 1,105. NASDAQ futures are bid higher by 14 points at 1,344, while Dow futures are higher by 25 points at 10,120.

AT&T beats estimates, then guides lower

Telecom service giant and Dow component AT&T (NYSE:T) $13.85 reported Q1 earnings of $0.06 per share, which was 2-cents better than estimates on revenues that fell 11.3% year over year of $12.0 billion (consensus was $12.1 billion). The company said it expects Q2 EPS of $0.01-$0.04 versus consensus of $0.04 and reduced FY02 capital expenditures in consumer business by $300- $400 million to $3.8-$4.2 billion.

Tidbits from earnings

Last night I was looking for some type of "news" to try and explain yesterday's declines in Cisco Systems (NASDAQ:CSCO) $14.01 and all I could find perhaps was a little "blurb" in Applied Micro Circuit's (NASDAQ:AMCC) $7.14 earnings. The company gave guidance that at some point this fiscal year (April 1 to April 1, 2003) they expect earnings to be "break even". For Q1 (ending June) AMCC said that the Q1 outlook carries more risk, but management says it expects fewer cancellations and push outs. Top 3 customers for Applied Micro Circuits are CSCO (21%), NT (15%) and Fujitsu (10%).

This "news" came after the close of trading, but one can imagine that there may have been a few analysts that knew of this through channel checks, etc., that an "blowout" number from Cisco (CSCO) this quarter may not be at hand. The thinking being that if AMCC is saying current quarter "carries more risk" and that Cisco, their top customer, may have been canceling some orders or pushing out some orders (this is only an assumption based on AMCC comments, we don't know for FACT that Cisco is pushing out orders).

AMCC and CSCO Comparison - Daily Intervals

After reviewing some brief notes from last night's newswires and earnings from Applied Micro (AMCC), I get the feeling that an analyst or two may have been doing some early homework and perhaps asked AMCC how business was shaping up in the latest quarter or future outlook. If so, and comments were like those given in the press release, the bulls looking for any upside surprise from CSCO may not have seen the catalyst for anything too bullish in CSCO's quarter. It could also be that some traders have also been trading AMCC and CSCO in unison with each other. This makes sense perhaps as it relates to CSCO comprising a great deal of AMCC's business. Now wonder both charts look so similar!

I can use these technicals to now control a bearish trade in Cisco (CSCO). If a trader is short/put Cisco (CSCO) from previous commentary, I'd have an alert set on AMCC just above the $7.50 level that coincides with $14.25 for CSCO on a short-term trade, and have alerts set just above downward trend on AMCC of $8.05 and CSCO at $16.05.

Today, bulls and bears will get a "market reaction" to AMCC's earnings and guidance. The "market reaction" will be in how AMCC trades. This may be a "preview" to how CSCO trades into earnings scheduled for release on May 7th.

Cisco (CSCO) undoubtedly has more institutions trading/investing in its stock that Applied Micro (AMCC) would.

According to Yahoo Finance, AMCC shows 975 institutions own roughly 76% of the float, but have been net sellers of 1.78 million shares (+0.87%) from the prior quarter to latest quarter. CSCO shows 3,454 institutions own roughly 57% of the float and institutional buying of 184.6 million shares (+4.33%) from the prior quarter to latest quarter.

Hmmmm.... those number comparisons don't add up do they, if measured against the chart comparisons and price action. How can CSCO be going down in price if institutional buying is taking place? Could be some big shorts in CSCO. As of March 8th, there were 71.2 million shares short in CSCO. I'm only guessing, but I think than number is on the rise.

Wow! This will be interesting going forward. If you like to "specialize" in a stock or two and really get intimate with the stock and other "like stocks" that have close business relationships with each other, like AMCC and CSCO have, then the above analysis may be helpful to you in the future.

Make some other comparisons too. Like insider activity or even some "fundamental" comparisons like book value, sales, gross margins, etc.

Make no mistake about it. AMCC looks "dependent" on CSCO for its price action. When the bull market returns for CSCO, expect AMCC to also see better days!

Take your trading to the next level! Are you point and figure nuts (like me) thinking I could have used some type of "bearish vertical count) from AMCC or sell signal in its supply/demand chart to have hinted of potential weakness in CSCO too? No wonder CSCO couldn't trade $22 back in December (red C on a point/figure chart)!

True... "lot of good this does me now." Oh, (grin) but there's a lot of trading to do in the days, weeks, months and years ahead!

Jeff Bailey
Senior Market Technician
Option Investor

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