Technology ended last week 12.6% undervalued according to my models, making it the cheapest sector in the market. In second place was consumer durables at 5.5% undervalued. Overvalued sectors include basic industry at 5.5%, energy at 8.5% and public utilities at 5.2%. Comparing valuations suggests that investors should continue to rotate into technology stocks.
This week, we have a few big hitters reporting earnings in the tech sector.
reports after the close Wednesday with an expected EPS of 24 cents. Three months ago, Cisco warned that it wouldn't meet prior guidance for the current quarter. I have reasons to believe that Cisco will beat the consensus this time.
Cisco should report increased demand for its routers from telecom providers that are upgrading their networks. Look for solid growth in VoIP networking with advanced security features.
My model shows Cisco 21.5% undervalued, with fair value at $22.84. The weekly chart profile would shift to positive on a close this week above its five-week modified moving average of $17.59. I see monthly pivots at $18.23 and $18.85, with potential upside to my semiannual and quarterly pivots at $18.99 and $20.79.
One of the stronger semiconductor companies,
, also will report after the close Wednesday with an expected EPS of 36 cents. Nvidia shares have traded higher over the past three months, raising the bar for the current quarter.
Despite the chipmaker's rise, it's still 13.7% undervalued, with fair value at $39.58. The weekly chart profile is neutral with declining 12x3 weekly slow stochastic, but with last week's close above the five-week MMA at $32.71.
If Nvidia remains between my monthly and quarterly pivots at $33.54 and $34.52, the reaction to the earnings report is likely to be a coin flip, particularly with the neutral weekly profile. It thus makes sense to wait for the earnings report rather than take the risk of a long or a short before the release. On a negative reaction to earnings, there is risk to my monthly value level at $28.48, at which point investors should add to longs. On a positive reaction to earnings, there is the possibility of another new 52-week high, but investors should reduce holdings on strength to my semiannual risky level at $41.14.
prerecorded disappointing earnings for the current quarter last week; it will make its results formally known after the close Thursday, with an expected EPS of 39 cents. Dell reached a new 52-week low of $28.82 on Nov. 1.
Dell has acknowledged that its strategy to undercut the competition while focusing on the high-end market hasn't worked. Research firm Gartner projects that Dell will log 12.7% growth for global PC shipments in 2005, led by laptops and mobile devices. Revenue will rise only 1%, however, as consumers and businesses are focusing on less-expensive models.
Dell is 25.8% undervalued, with fair value at $39.90. The weekly chart profile is extremely oversold with the five-week MMA at $32.08. If Dell were 40% undervalued, I would recommend starting a position. If I showed a value level nearby, I would recommend starting a position. Given a positive reaction to earnings, my monthly pivots are $32.50 and $32.66.
Weekly Chart Profiles
ended last week with a positive weekly chart profile; it will stay positive on a close this week above its five-week modified moving average of 2120. The Philadelphia Semiconductor Sector Index lags the Nasdaq on its weekly chart. Last week the SOX slipped below its 200-week SMA at 421.18 but closed above it. The SOX needs to end this week above its five-week MMA of 451.05 to shift the weekly chart profile to positive.
Value Levels and Risky Levels
My model suggests "Nasdaq 2300 or bust" or "Nasdaq 2300 then bust." My Nasdaq monthly pivots are 2121/2095; my quarterly risky level is 2319. This configuration shows 7% upside, which is fine for traders to attempt to capture, but longer-term investors should be prepared to raise cash, given strength to 2319 on the Nasdaq. My monthly pivot of 438.20 on the SOX would put my quarterly risky level at 487.90, which would be a gain of 8%, again a difficult bet for investors.
Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of
newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury Bond Trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury Strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback --
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