In this uncertain environment, the Nasdaq could be entering a bear market that could take us into mid-2006 before it hits bottom. The trends for a quarter are generally set in the first two weeks, and it seems now that all asset classes are on the defensive. Recent weakness in energy shares and utilities indicates that there are no safe havens. According to my model, technology remains the cheapest sector at 14.9% undervalued, with consumer durables in second place at 9.1% undervalued. Energy and public utilities dropped below 5% overvalued Wednesday for the first time this year. Looking at the daily charts, there's a simple reason for concern: the location of the 200-day simple moving averages for the Nasdaq and Philadelphia Semiconductor Index, or SOX. To avoid further downside risk, both the Nasdaq and the SOX need to stay above their 200-day SMAs at 2073 and 433.64, respectively. The Nasdaq failed to accomplish this feat Tuesday, while the SOX, which held this key SMA on Oct. 12, was below it for most of Wednesday. I guess we can blame it on Intel ( INTC). My model shows Intel to be 22.2% undervalued, with a fair value being $30.50. The chipmaker had a volatile ride Tuesday around its earnings report. It closed at $23.72 on Tuesday pre-earnings, traded above $24 on an initial positive reaction to earnings, then moved below $23 on confusion related to its performance vs. consensus. Intel opened around my weekly value level at $22.81 and is trying to pull its way back up to my quarterly pivot at $23.34. The company reported strong demand for notebook PCs, which boosted third-quarter profits by 5% on earnings of $2.0 billion, or 32 cents per share. Intel says that it's having trouble meeting demand for products, and this is adversely affecting its outlook for revenue. Earnings confusion involved how the 32-cent EPS actually compared to the consensus of 33 cents, and related charges of 4 cents and 2 cents. My 2 cents is, why quibble -- shares are undervalued, the weekly chart profile is oversold. Use weakness to buy Intel.
Motorola ( MOT) beat the consensus but I would sell strength on this one. Motorola is 9.1% overvalued, with fair value at $19.11. The weekly chart profile is negative and the five-week modified moving average is at $21.52, confirming that the 52-week high of $23.99 set on Sept. 15 will be difficult to challenge over the next three to five weeks. My monthly and semiannual value levels are $18.90 and $18.50, with an annual pivot at $20.00, a monthly pivot at $21.75 and quarterly risky levels at $23.55 and $23.80, below the 52-week high. Yahoo! ( YHOO) also beat consensus and the positive reaction isn't surprising. Yahoo! is 22.5% undervalued on the assumption that fair value is $45.51. Yahoo!'s weekly chart profile would shift to positive if it closes the week above its five-week modified moving average at $33.70, which now appears likely. Investors should consider buying it between my monthly and semiannual pivots at $32.98 and $35.93, as there is upside potential to my quarterly risky levels at $44.73 and $46.96. EMC ( EMC) reported better-than-expected earnings before the open this morning. My model shows EMC is 55.9% undervalued, with fair value at $30.04. EMC closed Tuesday at $13.24 above my monthly and quarterly pivots at $13.19 and $13.20, which was a positive setup to react to quarterly earnings. EMC's weekly chart profile would shift to positive on a close this week above its five-week modified moving average of $13.08. This sets it up for potential strength to my quarterly risky level at $15.29. Three companies set to report after the close today are undervalued enough that if they beat earnings estimates and offer solid forward guidance, the Nasdaq could stabilize. eBay ( EBAY) is expected to report EPS of 20 cents. eBay is 27.6% undervalued; fair value would be $54.84. Its weekly chart profile is neutral. A weekly close above the five-week modified moving average at $39.53 would shift the weekly chart profile to positive. My monthly value level is $36.47; my semiannual risky level, $44.56. Juniper Networks ( JNPR) is expected to report EPS of 18 cents. Juniper is 48.1% undervalued, with fair value at $41.56. The weekly chart profile is negative but oversold, with the five-week modified moving average at $23.01. A weekly close above it would be positive. My monthly value level is $20.07 with my monthly pivot at $21.83 and quarterly risky levels at $32.76 and $33.33. Verisign ( VRSN) is expected to report EPS of 27 cents. Verisign is 39.9% undervalued; fair value would be $34.40. The weekly chart profile is negative but oversold, with a weekly close above the five-week modified moving average at $22.07 a sign of a bottom. My monthly value level is $19.48; my monthly risky level, $26.25.