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Intel gives Wall Street the good news and bad news

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Aside from the smaller capitalized Russell 2000 Index (RUT.X) 544.15 -0.19%, which finished down 1-point in today's trade, the major indices battle back from a late lunchtime low to finish in positive territory, with the Dow Industrials (INDU) 9,930.82 +0.58% gaining 57 points to close within 70-points of the 10,000 level.

While bulls staged a late session rally ahead of tonight's mid- quarter update from chipmaker Intel (NASDAQ:INTC) $33.54 +0.59%, tonight's after-hours trade hints that some of today's modest gains may be given back at the opening of tomorrow's trade.

As part of it mid-quarter update, Intel (INTC) give investors some good news and bad news. Intel's CFO Andy Bryant said seasonal growth on top of a strong third quarter, with good demand for its processors and steady demand for its networking chips has the company narrowing its predicted revenue guidance to between $8.5 billion and $8.7 billion compared with prior guidance of $8.1-$8.7 billion, and that gross margins are now predicted at around 62% compared with the company's prior goal of 60%. While the revenue guidance was at the high end of recently revised upward consensus for $8.55 billion, Intel surprised Wall Street when it said it would take a $600 million charge, equating to $0.06 per share in Q4 for goodwill impairment related to its Wireless Communications and Computing Group.

Intel said the $600 million charge relates to its $1.6 million purchase in 1999 of DSP Communications, a maker of chipsets used in cellular baseband stations.

Intel determined the amount of its charge as part of its annual accounting review that examines discounted cash flows, near- and long-term growth assumptions, and asset values.

Mr. Bryant said current asset values of what it acquired from DSP, its expectations for cellular baseband chipset demand and long-term projections led to the current write-down.

Intel also said the company's struggles this year with its flash memory chips business had a role in the write-down.

The wireless communications group is represented primarily by flash memory chips, but also consists of application processors and cellular baseband chipsets for cell phones and handheld devices. During the previous quarter, the segment posted an operating loss of $124 million and revenue of $450 million.

In after-hours trade, INTC fell to $32.47, down 3.2% from regular session close.

Another tech bellwether had IBM (NYSE:IBM) $91.42 edging lower to $91.04 in tonight's late session trade, most likely in sympathy with Intel.

At Big Blue's security analyst meeting, held shortly before the closing bell, CFO John Joyce and other IBM executives discussed how they believe IBM can provide the expertise and technology necessary in an environment where customers' business value is expected to drive demand for more efficient technology offerings. In particular, Joyce said IBM believes that demand for business solutions will soon grow twice as fast as the rest of the information-technology industry.

IBM did not give any insight or forecasts regarding its current quarterly earnings or revenue estimates. Shares of IBM slipped 32 cents to $91.10 in after-hours action.

While I expected a little more volatility for the major indices than we saw today, I think today's report from the Labor Department that weekly jobless claims rose by 11,000 to 365,000, which was a disappointment to economists' forecast of 355,000 along with some dollar volatility had traders sitting on their hands in the first part of today's trade.

The U.S. dollar was up 0.2% versus the euro at $1.2082, rebounding from a new all-time low of around $1.2158 reached in intraday trading. Profit-taking in the euro emerged, sending the dollar up to an intraday high of around $1.2030, after a newspaper report said European policy makers were studying capital controls as a means to stem the rise in the euro. Meanwhile, the European Central Bank left interest rates unchanged, as expected. Against the yen, the dollar was down 0.1% at 108.20. The U.S. Dollar Index (dx00y) 89.70 +0.22% had the 6 foreign currency weighted dollar (euro and yen most heavily weighted) higher by its close, after trading a new low of 89.24 earlier this morning, with today's lifting of steel import tariffs also adding to the dollar's volatility.

I wanted to take a moment to quickly discuss today's 03:15 mentioning and early Market Monitor profiling of a QQQ bullish trade, and show an intra-day chart of the QQQ. I think this is a good lead in, for tomorrow's trade as it relates to tonight's news and after hours trade from Intel, and may give traders a key index to monitor early tomorrow morning.

NASDAQ-100 Tracking Stock (QQQ) Chart - 10-minute intervals

After the close I put together chart of the QQQ with our WEEKLY pivot levels (S1-R1) on the 10-minute time interval, which gives us a full week of trade on the chart. I wanted to show the POTENTIAL reverse head/shoulder bottom chart that might be developing.

I wanted to show the above chart, so that traders that may have taken a bullish trade in the QQQ near the $35.40 level not "freak out" tomorrow morning, should the QQQ open lower. In tonight's after-hours trade, which I don't necessarily feel is indicative of a true market response, the QQQ did fall to as low as $35.25 on the Intel news. Still, the POTENTIAL head/shoulder pattern is in play, and would only be violated on a break below the left shoulder of $35.25, which interestingly enough is pretty close to tomorrow's DAILY R1 of $35.25 (I've placed the 5 DAILY levels in brown on the above chart).

I received a couple of excellent questions as to why I'd profile a bullish trade in the QQQ at $35.39, if a reverse head/shoulder pattern wouldn't develop until a right shoulder formed back near $35.27. This is a fair question, but after seeing the rather quick snap back when the QQQ traded its $35.14 WEEKLY Pivot, I also had to weigh the thought that maybe, just maybe, the market knew something "for certain" that I didn't know in regards to the Intel (INTC) mid-quarter update, that had buyers looking firm near the $35.14 level. Not to mention our longer-term upward trend from the March lows.

While we did some work on the Q's in this morning's Market Monitor with our 5-minute retracement technique, and added together some prior intra-day observations that had me thinking earlier this morning the Q's might gravitate back toward the $35.65 level ahead of the INTC mid-quarter call, I must admit, that after seeing a trade at the WEEKLY Pivot today, I was starting to doubt that early morning analysis.

I do think though, if the QQQ gets above the $35.72 ascending neckline on the potential reverse head/shoulder pattern, then a bull's target of $35.99 may indeed be achievable, with DAILY R2 still higher at $36.10. That's not to say a move back above $35.80 and WEEKLY R1 is going to be a breeze, if tested, but if some short-term bears see the reverse h/s pattern outlined above and begin to panic a little, I'm going to then advise traders in the market monitor, to begin raising stops to profitability on a WEEKLY R1 test, and be ready to sell our target of $35.99.

As I type, it looks like QQQ last tick in extended hours is $35.42.

Let's take a quick look at the pivot matrix, as there are two levels of support that really look to be holding tough, and will most likely be a levels to monitor for support tomorrow, with a slightly negative tone in tonight's after hours.

Pivot Analysis Matrix -

In PINK I've made note of what I feel to be rather important levels of support, and my current thoughts are rather bullish, despite tonight's after-hours news.

In the above QQQ chart, we noted the test of WEEKLY Pivot in the QQQ, which also correlated with the MONTHLY Pivot. On first test, there was certainly buyers on the first test, and that's a good sign near term.

What has me rather bullish is the rather strong bid holding in some of the larger caps of the S&P 100 Index (OEX.X) 527.56, which for a third-straight session has shows solid support at the 524.50 level and WEEKLY R1. While resistance certainly looks formidable at the overlapping MONTHLY R1 and WEEKLY R2, the ability to hold and not cave in, even at today's post-lunchtime lows looks promising for the bulls.

I'll also note that while Intel is a Dow component, its lower share price may not have as much negative impact on the INDU as we might first thing, and with the INDU so near the 10,000, the market's willingness to bid the INDU higher into the Intel mid- quarter update, where there would still have been some hesitancy, is perhaps hint that there's still some believers in Dow 10,000.

S&P 100 Index (OEX.X) Chart - Daily Interval

While I do not want to forecast a trade at Dow 10,000 tomorrow, the OEX gives a good look for a support level at the 525 area holding pretty firm, despite some intra-day adversity the past three session, where on Tuesday and Wednesday, early gains were reversed lower to the close, but buyers stood firm as the OEX has started to creep above its October-November highs. We might tie in an OEX 530 with a trade at Dow 10,000. Just as we know there are some buyers at 525, there were definitely sellers yesterday at 528.50, which was correlative with the NASDAQ Composite (COMPX) 1,968 +0.43% trade at 2,000.00.

S&P 500 Index Chart - Daily Intervals

Today's trade has the SPX starting to look a little more sloppy at WEEKLY R1 than the narrower OEX. It is this observation that has me putting some importance on the NDX/QQQ (as more of a technology observation) and the OEX WEEKLY R1 (large cap, maybe not as much tech volatility).

Yesterday's observations of heavy buy program premium alerts near the 1,071 level, that really couldn't get bullish move going above that level will have me monitoring any similar trade tomorrow, should we see the SPX try and test the 1,071 area again. I do think there were some hedged put on yesterday and as noted this morning, they can come off as quickly as they went on.

SPX trader most likely has to use the QQQ MONTHLY/WEEKLY Pivot support observation and OEX WEEKLY R1 support observation to get a better feel for SPX support right now.

Dow Industrials Chart (INDU) - Daily Interval

From what I read in the "bears den" yesterday, the Dow shouldn't have done what it did today. First sign of weakness is below 9,832, but INDU looks to have some momentum from that MACD. In a trending higher market, MACD tends to overrule Stochastics.

I think it can, I think it can, I think it can.

Jeff Bailey

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