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Little forgiveness

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Shares of software maker J.D. Edwards (NASDAQ:JDEC) $11.16 -17% are suffering declines today after questions were raised late last night after the company released its latest 10-Q. The 10-Q revealed that $4 million in revenue for its July quarter was the result of a reduction in its allowance for doubtful accounts and this $4 million produced three cents of income for the quarter in which JDEC beat estimates by two cents when it reported earnings on August 21. The 10-Q also indicted that a $2.3 million reduction in vacation accrual due to a new vacation policy boosted earnings for the quarter.

JMP Securities says that JDEC management did verbally disclose that revenues were helped by a strong collection of receivables in its August 21 conference call, but that management made a mistake in not disclosing the magnitude and impact of the vacation accrual items at that time.

The declines in JDEC are what's weighing on the GSTI Software Index (GSO.X) 94.68 -2.28% as that stock leads the GSO.X declines. Also weak are shares of Advent Software (NASDAQ:ADVS) $13.91 -6.95% on a broker downgrade. Software gainers have Adobe Systems (NASDAQ:ADBE) $20.38 +10.46% holding the bulk of its session gains after reporting earnings last night, with shares of Network Associates (NASDAQ:NTAP) $13.93 +6.3% getting a boost after positive comments from Prudential Securities, following meetings with a number of storage companies. Prudential says that overall they believe that NTAP will be among the best positioned to leverage a revenue recovery, once business investment pick up, noting some improvement in demand from U.S. and Asia/Pacific demand recently, while weakness was still found in European markets.

Retailers as depicted by the Retail HOLDRS (AMEX:RTH) $83.00 +2.35% are today's sector winner after this morning's economic data showed a consumer still willing to spend as depicted by the stronger-than-expected retail sales numbers. Shares of broad line retailer Target (NYSE:TGT) $36.74 +3.96% and apparel retailer Gap Inc. (NYSE:GPS) $12.63 +4% lead gains, while Best Buy (NYSE:BBY) $24.17 -0.3% is the only component currently showing a decline.

The stronger-than-expected retail sales numbers were partially offset by some cautious tones in the University of Michigan's Consumer Sentiment Index falling to a reading of 86.2 in September from August's reading of 87.6. September's 86.2 marked a 4-month decline in consumer sentiment and the weakest reading since last November's 83.9 and slightly below the 50-year average of 87.9.

Volume is steady at the NYSE and NASDAQ with matching volume of just over 700 million shares traded at both exchanges.

Breadth has turned positive on the NYSE with advancing issues now outnumbering decliners by a narrow 8 to 7 margin, while breadth is just about even at the NASDAQ.

New highs versus new lows is "widening" a bit from the 11:00 hour on the NYSE with 19 stocks hitting new highs (13 at 11:00) versus 66 stocks trading new lows (60 at 11:00), while new highs versus new lows at the NASDAQ deteriorates some with 16 stocks trading new highs (13 at 11:00) and 118 stocks hitting new lows (96 at 11:00).

Jeff Bailey
Senior Market Technician
Option Investor

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