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  • Rev Shark:

    Market's Health Hinges on Tech Leadership
    3/11/05 8:24 AM ET

    The leader seeks to communicate his vision to his followers. He captures their attention with his optimistic intuition of possible solutions to their needs. He influences them by the dynamism of his faith. He demonstrates confidence that the challenge can be met, the need resolved, the crisis overcome.

    -- John Haggai

    The health of this market depends, to a great degree, on whether or not technology stocks can become leaders. If technology stocks along with financials and, to a lesser degree, retailers and biotechnology begin to outperform the rest of the market, there is a good chance for a healthy market environment.

    The recent leaders in the market have struggled mightily in recent days. Oils, steels, homebuilders and deep cyclicals have sold off hard as crude oil prices dipped. Money has been coming out of those groups but has not yet rotated into other groups with great vigor.

    A solid midquarter update from Intel (INTC:Nasdaq) now provides a catalyst for investors to embrace the idea of rotation into a new assortment of leaders. Today will be a key day in determining whether or not the focus of this market will shift to the stocks that have been the laggards for most of this year so far, or whether surging commodity prices will dominate.

    The big problem with the technology-rotation scenario is on a fundamental basis. There simply is no comparison between the huge earnings that are likely to be posted by energy and commodity stocks vs. what we will see from technology stocks. For every Yahoo! (YHOO:Nasdaq) with a P/E of 87, there is a Valero Energy (VLO:NYSE) with a P/E of 11.

    Certainly that sort of analysis is a bit of an apples vs. oranges comparison, but it does highlight one of the major problems with a strong rotation out of energy stocks and into other sectors. The numbers in oil-related stocks are good and likely on the low side, while technology faces much less chance of big earnings surprises and huge growth.

    If technology is going to take a leadership role, today is the day it should show some signs of doing so. The news favors that move, and if it happens, the bulls have a chance to capitalize. If they are unable to gain a little momentum today, the rotation scenario will be in doubt and the bears will be in control.

    No positions in stocks mentioned.
    Gary B. Smith:

  • Gapping Up

    INTC +1.4% (mid-qtr update; tightens Q1 rev guidance range), VC +14% (reaches financial agreement with Ford; Pru upgrade), NGEN +8.6% (issued a patent), KMRT +7.7% (UBS upgrade; $160 target), S +5% (UBS upgrade), VVUS +5.3% (bounces after 14% drop yesterday), FRO +4.9%, SNSA +4.2% (special dividend), MAHI +4.2%, TQNT +4% (wins DARPA contract), INCY +3.6% (started with an Overweight, $11 price tgt at Morgan Stanley), BOOM +2.4% (extends momentum), CNCT +2% (Piper upgrade), QCOM +1.7% (UBS upgrade).... Under $3: XOMA +23% (awarded $15 mln contract), SPAB +4.7%, MCZ +4.4%.

    Gapping Down

    Gapping down on disappointing earnings/guidance: ERES -26%, JILL -13%, TECD -6.6% (also multiple downgrades), IASG -12.4% (also delays Q4 earnings release), TIVO -2.5% (also SunTrust downgrade).... Other News: ISON -5% (provides update on acquisition), UTSI -1.9% (to delay 10-K filing), SEBL -1% (files 10-K; SEC provides copy of order of investigation).... Under $3: SCON -24% (Q4 report), EIDSY -14%, SVNT -11% (terminates phase 2 trial for Prosaptide), AVNX -7.2% (guides lower), MCEL -5.6% (profit taking after 54% move in 2 weeks).

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