pullback, my models suggest that a rotation into tech stocks remains a compelling longer-term investment thesis for both fundamental and technical reasons.
The Nasdaq has been holding 2130 as its low for the past three sessions, including this one. This is an important support, because the 50-day simple moving average is 2135 and the five-week modified moving average is 2133.
A close today above the five-day modified moving average of 2133 would indicate that the 2130 level should hold for the remainder of the week. A weekly close below that level would shift the weekly chart profile to negative and extend the correction toward my monthly support at 2060.
At 14.7% undervalued, according to my models, technology is still the most undervalued sector. Health care and transportation, the only other undervalued sectors, are much less so: Health care is undervalued by 5.2% and transportation by 1.1%.
Other sectors are overvalued: basic industries by 2.9%; consumer nondurables, 2.1%; energy, 10.6%; finance, 1.6%; and public utilities, 4.8%.
Keep in mind that a value level is a price at which buying should occur on weakness. A risky level is a price at which selling should occur on strength. A pivot is a value or risky level that was violated and has a high probability of being tested again as a magnet in its time horizon.
Reports After Wednesday's Close
is expected to report an EPS loss of 10 cents after the close on Wednesday. The software company develops financial applications for consumers and small businesses. Intuit heads into its earnings report only 7.7% undervalued, putting fair value at $49.74, and with a negative weekly chart profile.
Below the stock's five-week modified moving average at $46.67 is risk to the 200-week simple moving average at $43.94. On a negative reaction to earnings, the stock is likely to trade down to my monthly value level at $44.49. The upside on a positive reaction to earnings probably will be limited to annual and semiannual risky levels at $48.30 and $48.78, respectively.
Digital-video recorder play
faces expectations of a 4-cent EPS loss. The stock is 36.7% undervalued with a negative weekly chart profile, so it needs to see a positive reaction -- which presumably would be generated by a better-than-expected earnings report -- to stop its price slide.
Shares ended last week below both the five-week MMA at $6.19 and 200-week SMA at $6.36, so we can't expect any support from those factors. A negative reaction to earnings, which seems likely no matter what TiVo says, given the current picture, should push shares down to at least my monthly value level of $5.46. The upside on a positive reaction to earnings should be a rebound to my quarterly risky level at $6.17.
Thursday's Earnings Candidates
faces a situation much like TiVo's: It's already 36.0% undervalued, with a negative weekly chart profile, and shares ended last week below both its five-week MMA at $13.73 and 200-week SMA of $13.91. Expected to report an EPS of 26 cents, the designer of semiconductor image-sensor devices is likely to find that a negative reaction to earnings would push shares down to my monthly value level at $12.18. At that point, they could become more than 40% undervalued, and the stock would become a candidate for a long-term technology portfolio. The upside on a positive reaction to earnings should provide a catalyst for a move above my monthly risky level at $13.62.
Information technology play
goes into its earnings report only 0.7% undervalued, with fair value at $36.91. Its weekly chart profile is negative, with Friday's close just below the five-week MMA at $36.74 and 200-week SMA of $36.47, but shares are trying to stabilize above these moving averages today. A negative reaction to earnings should push shares down to my monthly value level at $32.84.
The upside on a positive reaction to earnings should be a move above my annual risky level at $36.80. So far during this session, the stock has ranged from $36.48 to $36.88, using that risky level as a pivot. If the price action stays above $36.80 going into earnings, it implies that the market expects a positive report.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider TiVo to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
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 --
to send him an email.