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Cisco deflates in after-hours

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Shares of technology bellwether Cisco Systems (NASDAQ:CSCO) $26.41 +0.80% fell to $25.28, or 4.2% in after-hours trade despite the company reporting quarterly earnings that beat Wall Street's estimates by a penny.

In what had been a tightly traded range for the NASDAQ-100 Tracking Stock (AMEX:QQQ) $36.93 -0.10% in today's session, the Tracker fell to $36.72, or -0.56%.

Cisco (CSCO) reported second-quarter EPS of $0.18 (excluding an $0.08 per share accounting charge), on revenues that rose 14.5% year-over-year to $5.4 billion, which was above consensus estimates for revenues of $5.28 billion. On the company's conference call, CSCO's Q3 guidance was for revenues to be up 1%- 3% quarter over quarter and 18-20% year-over-year, which for yearly revenues would equate to approximately $5.452-$5.560 billion, which was above consensus of $5.368 billion. What appeared to disappoint investors in after-hours trade was CSCO saying gross margins were seen between 67-69%, where overall margins were seeing some negative impact from its wireless LINKSYS business (contributed $165 million in revenue, which was a 39% sequential increase), where competition remained fierce. Gross margins for the recently completed quarter were 68.5% compared with 68.7% during the prior quarter.

Chief Executive John Chambers said during a conference call that for the second straight quarter he is more optimistic regarding business conditions than he was three months prior. Still, Mr. Chambers cautioned investors that some business leaders remain "surprisingly cautious" toward capital spending and hiring.

Earlier today, outplacement firm Challenger, Gray & Christmas said announcements, or planned layoff announcements by U.S. corporations jumped 26% in January (compared to December) to 117,556, the highest since October. John Challenger, CEO of the company said, "We typically see higher job cuts in January as companies set into motion business plans an employment needs for the year."

January's layoffs were 11% lower than January 2003's 132,222 and 53% lower than January 2002's 248,475, but continued to suggest a slow pace of recovery for the U.S. labor markets.

It should be noted that the Challenger report only addresses announced layoffs and other job reductions, not hirings.

Sectors seeing the largest number of announced layoffs were consumer product companies (22,775), financial services (15,157), and retail (14,016).

Market Snapshot / Internals - 02/03/04 Close

The major indices saw a rather flat trade during today's regular session, where NASDAQ's A/D breadth was negative throughout. NASDAQ A/D breadth has shown negative closing results for 5 of its last 6 sessions and suggests bulls have been less aggressive with their buying of 4 and 5-lettered stocks. While the NYSE finished with positive A/D breadth, its last 6 sessions of trade have finished with positive breadth 3 times, where positive breadth has been just about equal to today's.

The number of new highs at both the NYSE and NASDAQ are about half those number seen just a week ago when the NYSE was steadily above the 400 number of new 52-week highs, while NASDAQ averaging roughly 300. Both the NYSE and NASDAQ show their 5-day average NH/NL ratios below their 10-day, which depicts a near-term lack of bullish leadership. Current 5-day/10-day comparison at the NYSE is 97.4%/98.4%, while NASDAQ's 5-day/10/day comparison is 94.5%/96.4%.

Pivot Analysis Matrix

A tight range of trade was seen for the major indices with the S&P 100 Index (OEX.X) 563.36 +0.10% high of the day marked by its WEEKLY Pivot. While the QQQ does see a lower trade in this evening's after-hours, I will still note correlative resistance beginning to look formidable at the $37.50 level, where tomorrow's DAILY R2 and WEEKLY Pivot are highly correlative, and MONTHLY Pivot of $37.43 is also quite close. This may be a level where QQQ bears define a near-term level of resistance, and where QQQ bulls begin to see a short-term trading target if considering any near-term bullish trades.

Traders should keep in mind that on Friday, January nonfarm payrolls are scheduled to be released before the opening bell, where this data will be of great focus by market participants. Current economists' forecast is for the economy to have added 165,000 jobs after December's disappointing 1,000 addition.

As I update the pivot matrix this evening, I'm noting that today's 09:05-03:00 U.S. Dollar Index (dx00y) 86.85 -0.77% trade had the day's low of 86.61 coming at our MONTHLY Pivot. A time check shows this low came at 10:23 AM EST.

This may be an important observation for gold equity traders as the intra-day high on the AMEX Gold Bugs Index ($HUI.X) 216.57 +0.45% was 219.72, which came at 10:25 AM EST.

With the U.S. deficit getting great attention as well as reports of ricin being found at a U.S. Senate Office, I would have thought gold equities, and gold itself, would have found a much stronger bid in today's trade. Gold has been trying to firm around the $400/oz. level in recent sessions where this support may be correlative with the WEEKLY Pivot in the U.S. Dollar Index (dx00y) 87.06.

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

The OEX found its daily range marked by the MONTHLY Pivot as support and WEEKLY Pivot as resistance. Stochastics have turned higher from "oversold" as the OEX show three sessions of higher lows, while still within a relatively tight range of 560-567.

S&P 500 Index Chart (SPX.X) - Daily Intervals

I've noted where the e-mini S&P 500 futures (es04h) are currently trading after things appear to be settling down after Cisco's (CSCO) earnings. MACD still advising near-term caution to bulls, while Stochastics recover from "oversold." I would currently take a break back below 1,122.38 for the SPX to show a lower low after its recent 52-week high.

Dow Industrials Chart (INDU) - Daily Intervals

I'm making note of today's downgrade of Caterpillar (CAT) $77.04 -0.58%, which is one of the heavier weighted Dow components, which has been a real drag on the Dow of late. I'm thinking Bear Stearns' downgrade follow some selling by their clients ahead of the actual downgrade. Bear Stearns says their research shows that the heavy equipment and machinery stocks peaked two months ahead of interest rate spikes that took place in 1994 and believes CAT is fairly valued.

Intel (NASDAQ:INTC) $31.40 +3.56%, which doesn't carry nearly the weight of CAT as it relates to the INDU looks to have started to bounce after its recent declines from $34.50, which started on 01/09/04.

Keep an eye on CAT as a 3.5% bounce would have much greater impact on the INDU than that of INTC.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Intervals

Today's volume in the QQQ was light and most likely had traders cautious ahead of Cisco's (CSCO) earnings. I would have to think there would be major support found at or just above the $36.00 level, which was a major level of resistance this past fall, when broken to the upside, the QQQ rallied to a high of $39.00.

It has been light volume declines in the QQQ that has found some impressive "oversold" bounces, and I'll update volume patterns in the QQQ tomorrow. Jeff Bailey

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