This afternoon we will see if
trees grow to the sky, plus get reports from highfliers
Advanced Micro Devices
. Thursday will bring news from
-- and an indication whether these techs can stabilize a rocked sector.
While the negative reaction to earnings reports from
currently has the
reeling, this afternoon's releases will come from tech stocks that have stronger chart patterns and high expectations, particularly Apple.
At the MacWorld Expo last week, Apple CEO Steve Jobs announced that 14 million iPods were sold in the fourth quarter, and that new iMacs with Intel chips soon will be available. The news boosted Apple shares, which soared to an intraday high of $86.40 on Jan. 12 as Wall Street analysts flooded the newswires with upgrades and higher price targets. Jobs also indicated that the company would report revenue of $5.7 billion, higher than the Wall Street estimate of $5.04 billion. Apple sold 32 million iPods in 2005, and now owns 83% of the portable music market. New products expected in 2006 include Apple phones and flat-panel televisions; we will see if mention of these and any other new good news in the conference call on this afternoon's report is sufficient to stabilize the tech sector.
Apple is expected to report EPS of 62 cents. According to Thomson/First Call, 16 Wall Street analysts have a consensus price target of $79, with a high target at $100, so additional upgrades appear possible. ValuEngine rates Apple a hold, and according to my model, the stock is 30.9% overvalued with fair value at $64.58.
But Bear Stearns projects that Apple will earn $2.53 in 2006, and when I enter that figure in my model, fair value moves up to $69.57. That leaves the stock still more than 20% overvalued. The weekly chart profile is overbought, with the five-week modified moving average at $73.05 and the 52-week high set last week at $86.40.
Apple is a pure momentum trade, with monthly and quarterly value levels at $72.59 and $68.70. I show a weekly pivot at $86.62, which will be a key level to follow as the stock reacts to the earnings report.
Some analysts say eBay will beat by a penny, while AMD is a more difficult call. Deutsche Bank made a gutsy call on the chipmaker Jan. 13, downgrading AMD to a sell from hold, and set a 12-month price target at $26. But before Tuesday's open, Merrill Lynch downgraded Advanced Micro Devices from neutral to sell, indicating that the company will struggle to post sustained progress in the notebook and desktop processor markets, despite strength in the server environment. A key for AMD is an indication of just how much market share the company is taking from Intel.
AMD is expected to report EPS of 26 cents. According to Thomson/First Call, 20 Wall Street analysts have a consensus price target of $27.50 for the stock, with a high target at $45. AMD is rated a sell by ValuEngine, and my model indicates the stock is 66.7% overvalued, with fair value at $19.68. The weekly chart profile is overbought, with the five-week modified moving average at $29.92 and the 52-week high at $37.47, set last week. These factors qualify AMD as another pure momentum play. The key level to watch on a negative reaction to earnings is my monthly pivot, $32.52. Below is risk to my quarterly value level at $26.96. The key level to watch on the upside is a weekly pivot at $34.71.
eBay, meanwhile, is expected to report EPS of 22 cents. According to Thomson/First Call, 17 Wall Street analysts have a consensus price target on eBay of $43, with a high target at $65. eBay rates a hold with ValuEngine, and is 20.4% undervalued, with fair value at $57.08, by my model. The weekly chart profile shows rising momentum, with the five-week modified moving average at $44.63. The key level to watch in reactions to the earnings report is my semiannual pivot at $46.83. Below is risk to my monthly value level at $41.37. Above are quarterly and semiannual risky levels at $52.73 and $53.10.
Motorola's stock price surged last year on the solid growth performance in its wireless division, which accounts for some 60% of total revenue. Motorola's Razr cell phones are among the most popular handsets on the market. In 2006, the company is looking to gain market share in fast-growing regions such as China and India. The company also is set to challenge satellite radio with the iRadio, a cell phone that will receive 435 channels of radio content, plug into home and auto sound systems and be sold by wireless service providers.
Motorola is expected to report EPS of 34 cents. According to Thomson/First Call, 27 Wall Street analysts have a consensus price target for the stock at $26, with a high target at $32. Motorola rates a hold with ValuEngine and is 19.3% overvalued, with fair value at $19.76. Its weekly chart profile shows rising momentum, with the five-week modified moving average at $23.40 and the 52-week high at $24.99.
The key levels to watch following Motorola's earnings report are my annual pivot at $23.11 and quarterly pivots at $24.12 and $24.26. Below is risk to my annual value level at $20.96. Above is my monthly risky level at $26.12.
My Metrics Explained
I evaluate the U.S. capital markets and profile all sectors, industries or specialty groups of companies. There are more than 6,000 stocks in my database.
Remember that when investing and trading in the U.S. capital markets and specific stocks, decisions should be made only after evaluating both fundamental and technical considerations. It is also equally important to manage risk/reward by having levels at which to buy on weakness and sell on strength. The way to do this is to enter limit orders to buy at a price below the market, or to sell at a price above the market.
Combining fundamentals and technicals is like trying to mix oil and water, but I believe it is necessary to do so, to the best of your ability. The levels at which to buy or sell can be used regardless of the fundamentals or technicals.
My discipline involves a three-pronged approach to measuring the risk/reward for trading or investing:
I use ValuEngine to define my fundamental ratings.
: Long-term investors should start a position now.
: Buy on weakness to a value level.
: Add to an existing position on weakness to a value level, and reduce an existing position on strength to a risky level.
: Reduce on strength to a risky level.
: Liquidate now as a source of funds.
Weekly Chart Momentum
This approach measures the technical strength of a stock.
: 12x3 weekly slow stochastic above 80 on a scale of zero to 100.
: 12x3 weekly slow stochastic rising above 20, but below 80.
: 12x3 weekly slow stochastic not rising or declining, but between 20 and 80.
: 12x3 weekly slow stochastic is declining below 80, but above 20.
: 12x3 weekly slow stochastic is below 20 on a scale of zero to 100.
Key Technical Levels
I identify these as a price at which to buy on weakness and at which to sell on strength.
Moving averages on daily charts
: The 21-day, 50-day and 200-day simple moving averages (SMAs).
Moving averages on weekly charts
: The five-week modified moving average (MMA) and the 200-week simple moving average (SMA).
Value levels and risky levels
: My model includes proprietary analytics that evaluate the past nine closes in several time horizons: weekly (W), monthly (M), quarterly (Q), semiannually (S) and annually (A).
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.