CLOSING COMMENTS 10-18-04

Sellers had plenty of reasons to sell last week as an uncertain Earnings Season kicked off with numerous questions. Surging oil prices, an insurance industry scandal, concerns about a slowdown in China, which caused a sell-off in commodities, along with some unimpressive earnings, were among the culprits. The Dow lost 121 points, or 1.2% for the week, and is now down 5% for the year, closing at 9933. The NASDAQ lost 8 points, or 0.4%, and is off 4.6% this year. The S&P 500 dropped 14 points, sending it into the "red" for the year as it is off 0.3%. The Russell 2000 is the only major index still up for the year, as last week’s decline of 1.1% left it up 2.2% year-to-date.

While investors recently began to bid up the beaten-down semiconductor stocks, last week's earnings announcement from chip equipment maker Novellus Systems (NVLS) was a sobering reminder that there still may be more downside for the sector, which would be a negative for technology stocks. The company shocked analysts on its earnings call, lowering fourth quarter guidance to revenue of $300-$330 million and EPS of $0.19-$0.26 versus analyst expectations of EPS of $0.38 and revenue of $410 million. Look for results from Texas Instruments (TXN) on Monday evening, PMC-Sierra (PMCS) on Wednesday evening and Broadcom (BRCM) and KLA-Tencor (KLAC) on Thursday after the close to influence the direction of the sector this week. The September Semiconductor equipment book-to-bill report will be released after the market closes on Monday.

Many investors are focused on energy prices and the tight Presidential election, meanwhile earnings will definitely take the spotlight this week, the busiest week of the reporting season by far. Last week, 40 companies in the Standard & Poor's 500 index reported earnings. Of that group, 24 topped Wall Street estimates; eight were in line with estimates and eight missed. With so many earnings announcements expected this week, stocks are likely to remain volatile. With that in mind, here are several key technical support and resistance levels for traders to watch before staking out positions. On the NASDAQ, support is at 1,898, which represents its 50-day EMA and the August/September trend line. The S&P 500 will likely face resistance at 1,114/1,115, which represents its 50-day moving average. On Friday, the index's high was just below that level. 1,119 represents its 200-day moving average. A break-above either of these two levels could spark a rally in the broader market.

What can investors expect in the coming week? Lots of earnings announcements, beginning Monday morning with 3M Company (MMM). After the close, IBM (IBM) and Kraft Foods (KFT) post results. Tuesday morning, Altria Group (MO), Ford Motor Company (F), EMC (EMC) and McDonald’s (MCD) issue results. After the close, Motorola (MOT) and Electronic Arts (ERTS) reports profits. Wednesday morning, Honeywell (HON), JP Morgan Chase (JPM), MGM Mirage (MGM) and Pfizer (PFE) issue results. After the close, eBay (EBAY), Siebel Systems (SEBL) and VeriSign (VRSN) post earnings. Thursday morning, AT&T (T), Eli Lilly (LLY), Merck (MRK) and American International (NYSE: AIG) report. Later that day, Amazon.com (AMZN), Coca-Cola (KO), Google (GOOG) and Microsoft (MSFT) announce results. Analysts expect Google, for its first quarterly earnings announcement as a public company, to earn 55 cents per share, up from 36 cents in the year earlier period.

The economic calendar is light this week, with few market-moving data releases. Tuesday, September’s Consumer Price Index will be released along with September Housing Starts, which are likely to fall significantly. Thursday, September Leading Indicators are expected to post their fourth consecutive monthly decline. At 10 am that day, the October Philadelphia Fed Survey will be announced. Weekly jobless claims will be announced that day as is customary. Fed Chairman Greenspan speaks on Tuesday morning about the mortgage market and consumer debt. Fed Governor Bernanke gives a speech at noon on oil and the economy on Thursday, while that evening San Francisco Fed President Yellen speaks about the economic outlook.

Stay Tuned!