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Intel gives tech bulls late session optimism

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Shares of chip-giant Intel (NASDAQ:INTC) $22.71 -1.68% fell 39 cents during Thursday's regular session, then catapulted higher at $24.50 in the extended session after the company guided quarterly revenues higher.

Intel said it now sees quarterly revenues between $9.3 and $9.5 billion, which was well above the company's October 12 guidance of $8.6 to $9.2 billion. Intel added that it sees gross margins between 55-57%, which surrounded the company's 10/12 guidance of about 56%.

I (Jeff Bailey) think raising of revenue guidance, with gross margins holding at the 10/12 guidance was a positive surprise.

We've discussed Intel's inventory issues in recent commentary, and I would have thought that price reductions, in order to get the inventory issue back under control, would have had a more negative impact on gross margins.

Something I've forgotten about, and perhaps others have to, was a new tax law. Intel said that the new tax law, which allows U.S. companies to repatriate overseas profits at a temporarily low rate of 5.25%, rather than reinvest those profits overseas, may add up to $6 billion of earnings. Intel said it was not certain at this time if, or when a decision would be made to take advantage of the temporary rate.

I (Jeff Bailey) would have to think that Wall Street analysts have been accounting for these tax laws in earnings estimates for US-based companies that do business overseas.

Remember, technology company's as a whole derive more than 50% of their revenue outside the U.S. and Intel's "reminder" did draw did draw some commentary from analysts as a positive near-term catalyst.

In after-hours trade, the Semiconductor HOLDRs (AMEX:SMH) $33.50 -0.68% jumped $1.40, or 4.1%, to $34.90. The NASDAQ-100 Tracker (NASDAQ:QQQQ) $40.07 +0.37% last ticked by at $40.50, a gain of 1.07% from Thursday's close.

Shares of SanDisk (NASDAQ:SNDK) $23.92 +2.83% (see last night's Index Wrap and today's 11:00 AM EST update) jumped to $24.65

U.S. Market Watch - 12/02/04 Close

I do not give trade recommendations regarding futures (too much leverage and need to be followed rather closely), and I don't want to step on anyone's toes, but if there's one short a futures traders should be looking at its gold. Gold STOCKS, which I have been noting as UNDERPERFORMING got whacked today. Late last year, I noted the same thing developing where the commodity itself (gold) was hitting new highs, but the stocks were not. Gold (the commodity) then took a serious drubbing in the months to follow.

Be alert gold bugs! Keep an eye on the U.S. Dollar Index (dx00y). Should it break much above 83.03 and correlations in the Pivot Matrix, gold could see a trade similar to what oil has seen the past few weeks.

The dollar saw some gains today, and does show a percentage gain for the last 5-session, where the 5-session gain is largely attributed to today's rise. What's going on? My main thought, based on last several month's observation, is that ahead of tomorrow's nonfarm payroll numbers for November (consensus is +200,000) we're going to have some dollar shorts covering.

Why? With oil prices declining, that lifts that "tax on the consumer/economy" that Mr. Greenspan has commented on. The decline in oil by itself should bring some short-covering into the dollar, as a lower energy trade, probably has the Fed more willing/able to raise interest rates in the months to come. That thought can also bring strength to the dollar.

Does anyone question the Fed's growing comments that that it won't be as communicative with the public, or MARKETS, on its monetary policy in the future?

I don't. The reason I don't disagree is this. How can the Fed "win" if they say, we're going to do this or that with rates, when OIL PRICES have been doing what they've been doing this year?

Remember, oil went from $36 to $55 from July to October. Now its price has fallen from $55 to $44 in just 1.5 months!

Look at your Computer Technology Index (XCI.X) 718.31 -0.26%. It traded as high as 726.25 today, but still couldn't "seal the deal" with a close above 720. Hesitation in front of Intel? A high likelihood.

In my opinion, if the XCI.X can't get a close above 720 after the Hewlett Packard (NYSE:HPQ) $20.57 +0.24% (still off its Nov. 17 spike high of $21.32) and now Intel's mid-quarter update, then "big tech" bulls better be alert.

You see. As of today's regular session close, it has to be my thought that as of 04:00 PM EST, the MARKET still isn't a big believer in "big tech." True, 720 is just a level, but its a level that provides our, or my, bullish test. The MARKET is never wrong, and as long as we provide BOTH bullish and bearish tests over time, the MARKET will eventually tell us what its convictions are.

Dorsey/Wright and Associates' Computers Bullish % (BPCOMP) rose 0.97% to 55.56% and is still "bull alert" at 55.56%. It would take a reversing lower reading of 48% to turn back to "bear confirmed" and would need to exceed January's 70% reading to 72% to achieve "bull confirmed." In August, this bullish % fell to 18%.

If this were American football, the bulls have the ball, they're on the bears side of the 50-year line, but the bulls are probably playing with their second-string quarterback. The bulls crowd things they have a chance to score points (reach 70%), but there's that little thought in the back of their mind that the second string quarterback is sure to throw an interception.

What do you think? Don't you feel, based on observation that tech wants to rock? But it just seems to good to be true?

If you do, then that's good! You're not showing any complacency.

Market Snapshot/Internals - 12/02/04 Close

Traders are turning up the volume at the NASDAQ, where a heavy 2.4 billion shares traded hands. Look at the disparity between the big board's a/d line and that of the NASDAQ. I'm thinking its the larger number of "energy" stocks listed on the NYSE that has something to do with that. The volume on the NASDAQ? Maybe some dividend reinvestment from Mr. Softy (NASDAQ:MSFT) $27.09 +0.58.

I don't really follow up/down volume indicators, other than TRIN, (you can only follow so much) but today's NYSE reading of up 715 and down 1,024 versus the NASDAQ's up 1,441 and down 970 may also suggest some strong outflows from the energy areas and being redistributed in other sectors, or simply moving over to some four and five-lettered stock symbols at the NASDAQ.

Please note that the up/down volumes are in millions.

QQQQ traders. In tonight extended session, I posted a comment in the Market Monitor to write down $40.11. While I was updating traders on some of the evenings activity in the extended session, I saw a late print of 2,000,000 shares being "blocked out" at $40.11. What this trade most likely is, is a trade for a large institutions, that a trader worked all day to fill, for 2,000,000 shares. Now, I do NOT know if it was a buy, or sell order. Just make note of $40.11, as it may become an influential level at some point in the future.

Pivot Matrix -

The dollar has been volatile on a Friday's nonfarm payroll data. With the dollar having gotten smashed lower in recent weeks, strength levels begin at WEEKLY Pivot and DAILY R1 correlation. If the nonfarm number is "too hot" meaning something above 300,000, then I'd have to think MONTHLY Pivot and WEEKLY R1 are upside risk levels for dollar bears.

I cannot say that the dollar weakness is directly tied with broader market equity gains. There are some that do believe this to be a direct correlation. I do believe there is a more direct tie with dollar gold.

Banks will be a good sector to monitor, judge for a market response, which might not be as knee-jerk as technology stocks, or even the SPX, where futures traders (also highly reactionary on an intra-day basis) can be quick to rush to judgment.

Let's pretend the jobs number is much stronger than the 200,000 forecast.

The initial thought from the market might be.... "Good gravy! The economy is on fire, its too hot, the Fed has been to easy with interest rates, rapid inflation will follow, the sky is falling the sky is falling."

Now, it has been my observation, that corporations tend to not hire as many workers in DECEMBER (next nonfarm number).

With that in mind, be ready for dollar and Treasury yield volatility. But use the BIX.X, and all that you have benefited from with how this sector trades, and can give you insight to, to bring some reasoning into tomorrow trade.

As it stands tonight, I think the BIX.X is saying, everything is under control.

This thought process might be proved incorrect should the BIX.X fall below its DAILY S2 and WEEKLY R1 correlations.

If the nonfarm payroll number is "too hot" expect the immediate worries/thought about inflation to be present.

Keep an eye on gold. At $450, it has to have some type of "inflation" alert added to it.

Remember! The U.S. Dollar Index (dx00y) is similar levels as found in April/May of 1995. As I review the 08/31/2003 Ask the Analyst column titled "Gold and the Fed. Too loose, too tight, or just right?"; gold was trading in the $385 area.

Jeff Bailey

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