Upside Is Limited for the Nasdaq

Friday's dive makes it easier for tech companies reporting this week, but technical damage should limit any rebound.
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Tech stocks stabilize, but the upside for the

Nasdaq

should be limited.

Friday's decline on the Nasdaq makes it easier for the tech stocks reporting earnings this week, but don't get overly optimistic. Be selective and look for undervalued tech stocks on weakness to value levels.

There has been some technical chart damage, which should limit a tech-led rebound by the Nasdaq. The daily chart profile is negative, with the 50-day simple moving average at 2251 and this week's pivot at 2260. A close this week below the five-week modified moving average of 2252 would shift the weekly chart profile to negative, indicating risk to my quarterly support of 2159.

Texas Instruments

(TXN) - Get Report

reported after the close Monday and

EMC

(EMC)

before the bell Tuesday.

TI reported fourth-quarter EPS of 43 cents, beating the consensus by a penny. Revenue for the quarter was a bit shy of estimates, which gave shares a modest haircut. With a negative weekly chart profile, the stock should stay below its five-week modified moving average of $32.61, with risk to its 200-day simple moving average of $30.24. The stock could drop to my quarterly value level of $26.38, where long-term investors should consider buying.

EMC reported fourth-quarter EPS of 17 cents, in line with expectations, on revenue slightly above the Street estimate. Its weekly chart shows declining momentum, with the five-week MMA at $13.65 and the 200-week SMA at $11.14, so the rebound should be limited. EMC should continue to trade in a reversal-oriented pattern among quarterly pivots of $13.22 and $13.36 and a monthly pivot of $14.08. The upside above this range is to my monthly risky level of $14.77.

EMC is undervalued by enough to consider adding to a long-term portfolio at roughly $13.36 to $13.22. The downside risk below this range is to my semiannual value level of $9.74.

On deck to report Wednesday are

Altera

(ALTR) - Get Report

,

Juniper Networks

(JNPR) - Get Report

,

Novellus

(NVLS)

and

Qualcomm

(QCOM) - Get Report

.

Altera, a maker of chips used in routers and switches, is expected to report EPS of 19 cents. It's rated a hold according to ValuEngine, though it's trading 26% below its fair value of $25.03. The weekly chart profile is flat, with the five-week modified moving average at $18.85, and the 200-week simple moving average at $18.55.

According to Thomson/First Call, 22 Wall Street analysts have a median price target of $22, with a high target of $30, which lines up with my model. Quarterly and semiannual value levels are $17.04 and $15.39, respectively, with monthly pivots of $18.56 and $20.00, a quarterly pivot of $18.78, and quarterly and annual risky levels of $21.68 and $27.87. The long-term investor should add to this position on weakness to my quarterly value level of $17.04, and reduce holdings if it rises to my monthly pivot of $20.00.

Internet gear maker Juniper Networks is expected to report EPS of 20 cents. It's rated a hold according to ValuEngine. It's 40.6% undervalued, with fair value of $36.38. Momentum is declining on the weekly chart -- the five-week MMA is $22.27 and the 200-week SMA is $17.99. According to Thomson/First Call, the median analyst price target is $28, with a high target of $32, which is a weaker profile than my model produces. I show a semiannual value level of $17.75, with monthly risky levels at $24.48 and $25.06. Juniper could be quite volatile following its earnings report. On a positive reaction to earnings, the stock should end the week above $22.37. On a negative reaction to earnings, it could fall to $17.99 or $17.75.

The semiconductor equipment maker Novellus is expected to report EPS of 16 cents. It's trading 21.5% under its fair value of $35.06, but ValuEngine rates it a hold. The weekly chart shows rising momentum, with the five-week MMA at $25.77 and the 200-week SMA at $30.61. According to Thomson/First Call, 18 Wall Street analysts have a median price target of $27, with a high target of $40, which is slightly weaker than my model. I show quarterly and monthly value levels of $24.26 and $23.54, making Novellus a stock to consider buying on weakness. A key level to hold following earnings is my monthly pivot of $26.99.

Qualcomm, a designer of CDMA-based integrated circuits and system software for wireless voice and data communications, is expected to report EPS of 38 cents. It's rated a hold by ValuEngine, and it's 1.9% below its fair value of $47.87. The weekly chart shows flat momentum, with the five-week MMA at $46.08. The median analyst price target is $50, with a high target of $55, which is a stronger profile than my model produces. I show a monthly value level of $42.80, with a monthly pivot of $46.36 and quarterly risky levels at $51.30 and $53.79. I'd consider reducing holdings if shares rise to $51.30/$53.79.

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:

Fundamental

I use ValuEngine to define my fundamental ratings.

Strong buy

: Long-term investors should start a position now.

Buy

: Buy on weakness to a value level.

Hold

: Add to an existing position on weakness to a value level, and reduce an existing position on strength to a risky level.

Sell

: Reduce on strength to a risky level.

Strong sell

: Liquidate now as a source of funds.

Weekly Chart Momentum

This approach measures the technical strength of a stock.

Overbought

: 12x3 weekly slow stochastic above 80 on a scale of zero to 100.

Rising

: 12x3 weekly slow stochastic rising above 20, but below 80.

Flat

: 12x3 weekly slow stochastic not rising or declining, but between 20 and 80.

Declining

: 12x3 weekly slow stochastic is declining below 80, but above 20.

Oversold

: 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

TheStreet.com Technology Report

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 --

click here

to send him an email.