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The Sun Rises Amid Warnings

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        06-06-2001        High      Low     Volume Advance/Decline
DJIA    11070.24 -105.60 11179.68 11059.64 1.06 bln   1217/1858	
NASDAQ   2217.73 - 15.9.  2249.72  2204.88 1.74 bln   1613/2195
S&P 100   655.07 -  7.02   662.09   654.32   totals   2830/4053
S&P 500  1270.03 - 13.54  1283.85  1269.01           41.1%/58.9%
RUS 2000  512.58 -  3.90   516.48   512.52
DJ TRANS 2898.39 - 19.03  2917.47  2896.79
VIX        22.38 +  1.16    23.13    22.02
Put/Call Ratio      0.58

The Sun Rises Amid Warnings

Shares of Sun Microsystems (NASDAQ:SUNW) attempted to bolster the Nasdaq Wednesday morning. But another not-so-friendly piece of guidance stymied the tech-laden index's advance.

Influential Goldman Sachs (NYSE:GS) computer hardware analyst Laura Conigliaro issued a modestly positive report on Sun Micro, which was enough to induce early morning buying in the tech space. Conigliaro suggested that Sun Micro's business is beginning to show signs of stabilization. What's interesting is that Conigliaro has been bearish on shares of Sun Micro for quite some time and her report follows the company's warning just last week. But, Conigliaro reported that her checks among Sun's distributors showed signs of an up-tick.

Several hardware stocks benefited from Conigliaro's call early Wednesday, including shares of EMC (NYSE:EMC), Dell Computer (NASDAQ:DELL) and IBM (NYSE:IBM).

However, the Hewlett-Packard (NYSE:HWP) analyst meeting that we addressed in Tuesday night's Market Wrap snuffed the early morning momentum in the tech space. Carly Fiorina, CEO of H-P, delivered ominous guidance at the beginning of the conference call this morning. Fiorina reported, "While it is still early in the quarter, May was softer than expected and [H-P] is now addressing what is clearly becoming a global slowdown." Fiorina elaborated on the slowdown in European and Asian markets, which Sun Micro addressed last week.

Now we know that H-P has been struggling for quite some time. We can conclude that much my observing price action in its shares - the stock is only a few points off its 52-week low. Nevertheless, Fiorina's cautious remarks induced a combination of profit taking and shorts pressing their bearish bets in the tech space, which erased the majority of the hardware sector's earlier gains. Although, Sun Micro did manage to finish 3.5 percent higher.

For the most part, the Nasdaq Composite (COMPX) traded alright considering H-P's warning. The COMPX traded in a narrow range of only 45 points, on volume that was about in-line with the 50-day average volume. The index did find buyers at the 2200 level following H-P's warning, but couldn't manage to eclipse the big retracement resistance level at 2250 that we highlighted in Tuesday's Market Wrap. In fact, the COMPX's day high was 2249. I think it would be worth while to continue to monitor the 2250 resistance level in the coming days for a breakout. As well, keep an eye on support at 2200 established Wednesday.

For an ancillary support zone concerning the tech sector, I thought I'd pass along an observation I made this morning. The Nasdaq-100 (NDX.X) attracted buyers every time it dipped down to the 1890 level Tuesday morning. Each time the NDX dipped down to 1890, I noticed that buyers stepped into each of the big-cap Nasdaq stocks I was monitoring. Interestingly, I tooled around with a few retracement levels and found a fit from the reversal day on February 15th to the NDX's relative low. I don't know if market makers are using this retracement to manage risk, but I thought it would be worth mentioning.

As if H-P wasn't enough, another warning from the tech sector was delivered after the bell. Broadcom (NASDAQ:BRCM) warned that its second-quarter would fall further than previous guidance had suggested. However, Broadcom's CEO, Henry Nicholas, offered, "Although current demand conditions continue to be soft, [Broadcom] is starting to see some signs of stabilization in the business for the second-half of the year." Broadcom's warning was issued after the after hours session of trading closed, so we'll want to monitor the market's reaction Thursday morning. Recent suggestions of stabilization, such as the Sun Micro report this morning, have been well received by the market, so the actual warning from Broadcom may be a moot point. (Remember, always forward-looking.)

Away from the tech sector, J.P. Morgan Chase (NYSE:JPM) warned on the revenue front. The shortfall by J.P. Morgan had a double-whammy impact on the market. The stock is a component of the Dow Jones Industrial Average (INDU) as well as the KBW Bank Sector Index (BKX.X), which I've been detailing recently. Shares of the stock finished lower by $1.66.

The Dow is likely to see continued weakness Thursday morning in light of the after hours news concerning Phillip Morris (NYSE:MO). A Los Angeles jury awarded a smoker $3 billion in punitive damages from Phillip Morris. Shares of Big Mo fell $2 in after hours trading.

Going into Thursday's trading, market participants will be awaiting guidance from chip giant Intel (NASDAQ:INTC). The company is scheduled to hold its mid-quarter analyst update after the bell at 5:30 PM EST. Keep in mind that when Intel last reported, it forecasted a pretty wide range of revenue estimates, between $6.2 and $6.8 billion. The current consensus is pegged at the lower-end of that range. The market will be listening for signs of improvement in the chip business, which would give the Philadelphia Semiconductor Index (SOX.X) and the Nasdaq the green light to advance. But, if the company guides lower, the two aforementioned indexes could be poised for an extended pullback. In either case, be aware of the Intel call Thursday AFTER THE BELL and plan your trades accordingly. Also worth noting, National Semiconductor (NYSE:NSM) will release earnings at 1:00 PM EST, during market hours.

On a final note, those interested in learning how to use retracement brackets to improve your trading should consider signing up for my online seminar this Sunday, June 10th at 8:00 PM EST. I'll show you why retracement brackets work and how to use them to better manage risk, pick entry and exit points and increase profits. You can learn more about the seminar through the link below.

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Eric Utley

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