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Merrill's caution on semi-equipment has technology lower

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Broker Merrill Lynch cut its fiscal year 2003 capital expenditure forecast to 20-25% from 30% for the semiconductor equipment sector and downgraded 13 stocks in the group, believing that a pause in orders in the 2nd-half has become more likely. Merrill downgrades include AMAT, KLAC, LRCX, NVLS, ASYT, MKSI, VECO, ENTG, AEIS, TWAV, UTEK, DPMI and EMKR.

Giving some mixed signals in the semiconductor sector is Salomon Smith Barney's cutting of estimates for chip-maker Intel (NASDAQ:INTC) $18.50. Salomon thinks that while recent news that Taiwanese mobile shipments are picking up and DRAM prices are firming and signaling a modest seasonal upturn in PC components, a mix of issues that impacted Intel (INTC) in Q2 could carry over into Q3, resulting in slightly lower than expected revenues and gross margins. Salomon cuts INTC's 2002 EPS estimates to $0.55 from $0.60 and 2003 EPS estimates to $0.90 from $1.00, and lowers INTC's price target to $27 from $45.

In pre-market trading, shares of Intel (INTC) edged lower at $18.15 (-1.89% from Monday's close), while semiconductor equipment maker Applied Materials (AMAT) traded down $0.75 (-3.94% from Monday's close) at $18.25.

Stock futures edging up

Stock futures dipped lower on both of the above comments from brokers in the semiconductor space, but have since recovered from morning lows and now hint at a slightly higher open for the broader market.

S&P futures (sp02u) currently trade down 1.00 point at 977.30, NASDAQ futures are down 7.00 at 1,018 and Dow futures are up 1 point at 9,279.

Fair value for the S&P 500 today is $1.12. That price will not change during the session. HL Camp & Company has their computers set for program buying at $2.00 and set for program selling at $-0.74. Fair value for the NASDAQ-100 today is $4.00.

Treasuries mixed, but U.S. Dollar lower

Treasuries are seeing mixed results this morning with modest selling in the long end as YIELD rises gently in both the 30-year ($TYX.X) 5.510% and 10-year ($TNX.X) 4.827%, while the shorter maturities see YIELD edging lower in the 5-year ($FVX.X) 4.023% and 13-week ($IRX.X) 1.687%.

The U.S. dollar is weak again today as depicted by the U.S. Dollar Index (dx00y) 105.77 -0.47% and setting a new 52-week low.

The action in the weaker U.S. Dollar is putting a bid under December Gold futures (gc02z) $316.60 +0.63% and may give some upside to gold stocks at the open of trading.

Jeff Bailey
Senior Market Technician
Option Investor

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