Symantec And Micron Drop Bombs On The Rally!
Just when traders were breathing a sigh of relief over a decent string of three positive days on the Nasdaq, Symantec and MU dropped earnings bombs on the rally. The software company dropped estimates in after hours from $.65 to $.40 and got hammered for a -$13 drop. Micron added to the mushroom cloud with an earnings miss of sizeable proportions. Joining the club was chip maker Transmeta. Anyone who had doubts about the severity of any remaining warnings should be converted by today's action.
The rally on Thursday was also rumored to be fed by some fund re-balancing as we near the end of the quarter. The volume on the NYSE was very heavy with almost 1.5 billion shares and many of those shares were in large block market on close orders. The rumor mill attributed this volume on several funds shifting from growth to value in advance of the slow trading week expected before the holidays. There was simply no reason and not enough conviction to assume the volume was retail traders and cash inflows to funds have not been enough to cause a buying surge. If you look at the trading pattern during the day you will see a surge of buying until after lunch and then constant selling in the afternoon. This could be attributed to a large fund making purchases in the morning, knowing they would drive up prices and then dumping different stocks in the afternoon to take advantage of the morning bump.
Now the news that will move the markets tomorrow. Symantec warned after the close that first quarter expectations would fall drastically short due to weakening "global" spending and negative currency effects. They are now forecasting 39-47 cents compared to estimates of as much as 67 cents. They also said revenue would be flat. They are still expecting annual revenue to grow slightly but investors fled anyway. The stock closed over $61 but was trading as low as $45 in after hours. The software sector is sure to react negatively to this on Friday.
Micron announced earnings in after hours and they were not even close. They had a loss of -.50 compared to estimates of a -.15 loss. The challenge for Micron is the glut of chips. Each 64MB chip costs over $2 to produce and the current spot market is about $.85. It is just like using dollar bills as wrapping paper for each chip sold. I guess they plan on making it up on volume!! The chips have been falling as much as a nickel per day. Revenues fell -24% and they had to take a huge write down on existing inventory. They said they saw no signs of any recovery on the horizon. Kiss the semiconductor sector goodbye for Friday. Ironically the horrible environment will drive smaller companies out of the market and the big companies like MU should recover and be stronger when the PC sector recovers.
Transmeta was the big loser of the day after saying revenues could drop as much as -45% due to decreased demand. The stock fell from $12.50 at the close on Wednesday to almost $5 at the close on Thursday. A -57% drop in one day.
Manugistics met analysts estimates of three cents but fell -3.50 in after hours trading. They said demand was still strong for their products and the drop may be in response to the Symantec news. The stock had risen several dollars in advance of the earnings report. Some analysts believe the management at MANU is responding to the economy better than many of its bigger competitors.
RIMM also announced earnings and failed to drop in after hours! The reason...they matched forecasts and were optimistic about sales going forward. They are not that big but they are a high profile device maker. The BlackBerry wireless email device gained 44,000 customers in the quarter and they said they had several new agreements ready to announce with major new providers that would expand their reach and sales. They are one of the few companies who are forecasting gains in the next quarter. Competitor HAND just cut its forecast and PALM said in May that the fourth quarter loss would be double previous projections.
Good news - bad news joke? The good news is that Lucent may have found a buyer for its fiber division. The bad news - it is CIEN and the price could be as low as $3 billion, less than half of what Lucent expected to get just a month ago. Ciena stock fell about a dollar on the news. Is it a bargain for CIEN or a headache from which they will not recover? Analysts think that the current fiber glut may be providing a too good too be true deal for CIEN since conditions will eventually recover. Will $3 billion get LU out of debt? Will LU trade under $5 on the news? Time will tell.
Not all things were bad today. Eastman Kodak reaffirmed their guidance and gained +1.66. GM and Ford also gained ground after a report said June would be a very strong month for car sales. Retailers gained ground on expectations that the Fed is not done cutting rates as well as brokers on expectations that the markets may recover soon. Good earnings from Lehman and Morgan Stanley have helped spur financials in addition to the rate cut fuel.
Jobless claims fell more than expected to only 400,000 for last week and significantly below the 434,000 level reached the prior two weeks. This could simply be a blip in the reporting as we move into the summer season and more people are interested in vacationing than filing for immediate unemployment. A positive Philadelphia Fed index showed that the economy may have bottomed and the outlook is improving slightly. This provided some comfort to the markets but the real key is still the Fed meeting next week.
The markets will probably trade in a range between now and the Fed meeting next week. The Fed has got to be concerned that there has not been more reaction to the prior rate cuts and Fed watchers are hoping they will continue to act aggressively with another -50 point cut. The worry exists that the Fed will not want to continue to pour gas on the smoldering economy in the hopes of avoiding an explosion. If the Fed only cuts by 25 points the markets could react negatively. This indecision is what should keep the markets in a trading range. I mentioned on Tuesday night that we had not seen a pre-Fed bounce yet and after the last two days the oversold conditions that fed that bounce have eased. Now there is nothing to fuel any buying until after the meeting. Volume will continue to slow next week as traders head out for the mid-week July 4th holiday. Some will take a long weekend prior and some a long weekend after with the result being a lethargic week.
The bottom line here is a yawn. In spite of the major earnings problems after the bell today the futures are basically flat. Curiously flat. You would normally expect a major miss by MU to be a serious problem but everybody knew it was bad already. The book to bill ratio improved slightly to a .46 in May from .44 in April. Grasping at straws? Maybe. Also, the number of earnings warnings has actually SLOWED from the pace set last quarter. This same time last quarter we had 598 negative and 113 positive announcements and so far this quarter we have had 550 negative to 149 positive. As I said on Tuesday there is an undercurrent of bullishness and things are not as bad as they seem on the surface. Advancers beat decliners again today and the Russell-2000, a real leading indicator, is making a strong recovery. A week of basing here will provide comfort to those who are worried about further drops. There are fireworks in our future, both literally and figuratively!
Got a couple hours to spare tonight? Jon Farnlof is presenting a seminar tonight on "Day-trading for People With Day Jobs" at 9:PM ET. Click the link below to attend:
Enter passively, exit aggressively!