Wow. What a turn around in just a few days.
When I was writing my previous post after the close last Tuesday the market was starting to look up. We’d had a nice rally on Thursday and Friday (Jan 11 and 12) and things looked good heading into earnings season.
But, oh man, did things turn around quick.
Intel (NASDAQ: INTC) reported after the close last Tuesday and I would mark that as the turning point. Revenues were down 5% and net income 39%, as I wrote last time, but the thing I heard alot of talk about were it’s gross margins – that’s revenue, the total money they take in, minus “cost of goods sold” or what they paid for the raw materials and labor involved in producing their products. They were below 50%, just barely, and apparently alot of people were worked up about that.
The Nasdaq closed last Tuesday at 2498 but by the end of trading Thursday was down to 2443 – a 55 point drop, amount to about 2.2%.
As of right now (Monday Jan 22, 2:15pm EST) it’s down another 10 points from there to 2433. Todd Clark, director of trading at Nollenberger Capital Partners said today (subscription required): “It’s some more of this fallout from the pullback in technology we saw last week.”
Where to from here? My intuition is that there’s more downside in tech and, with tech being the market leader lately, that means more downside for the market as a whole.
Why? Because the numbers I’ve looked at, for instance Intel’s, just weren’t that bad. I don’t see why that justified such a big sell off in their shares. In fact, they beat analyst earnings estimates. What this says to me is that expectations are too high. In bidding up these shares investors have been overly optimistic and if that proves to be wrong, even companies reporting okay earnings will get hit.
Earnings season really swings into gear this week and next (the 4th and 5th weeks of the quarter) and here are some tech reports I’ll be keeping my eye on in the next few days:
Monday: Texas Instruments (AC – After Close)
Tuesday: Advanced Micro Devices, EMC, Sun Microsystems, Tellabs, Yahoo
Wednesday: F5 Networks, Qualcomm
Wednesday (Jan 31): Google