Insights

Dell Earnings Weigh on Tech, Market Drops Marginally

Merrill Lynch downgraded the semiconductor sector yesterday, causing chip giant Intel Corp. (NSDQ: INTC) to take a 4% hit.  Today it was the computer maker that boasts “Intel Inside” turn to get hit as after the close yesterday, Dell Inc. (NSDQ: DELL) reported earnings that were five cents below expectations ($0.23 vs. $0.28).  Dell also missed their top line revenue number by $300 million ($12.9 billion vs. $13.2 billion) and the stock got hit for 9.95% today, dropping $1.58 to $14.29.  The market was down most of the day but staged a late  rally, turning the Dow Jones Industrial Average positive briefly.  However, the tech heavy Nasdaq 100 opened in negative territory and stayed there all day.

The Nasdaq 100 dropped 8.80 points (-0.49%, 1,764.39) and was the weakest of the three major indexes.  The Dow Jones Industrial Average lost 14.28 points and was in positive territory fifteen minutes before the closing bell, but slid into the weekend.  The S&P 500 lost 3.52 points (-0.32%, 1,091.38).

The strongest news of the week probably came from Microsoft (NSDQ: MSFT) as they reported ‘Windows 7′ sales are very strong.  Mr. Softy went out at $29.62 this week and this stock has not seen these levels since June 2008.  I recall some of the talking heads on TV recommending buying Dell a month ago or so, on the premise that the whole computer upgrade cycle sparked by ‘7′ would benefit the computer maker.  We got the answer to that thesis today.  Try again.

D.R. Horton Inc. (NYSE: DHI) released earnings today and lost $0.73 a share which was much better than a loss of $2.53 a year ago.  Analysts expected a loss of $0.30 and this miss brought a fresh wave of selling into the home builders.  Yesterday home builders were hit on a Mortgage Bankers Association report saying that 14.4% of all homes with a mortgage were at least one month delinquent on their payment or in foreclosure.  D.R. Horton got hit for 15.34% today (-$1.88, $10.37) with most the other home builders losing about 3 to 3.5%.

The SPDR Gold Trust (NYSE: GLD) went into the weekend with an all time high close.  Gold has been strong all week, with the GLD closing on its high for the day at $112.94, just 15 cents below its highest trade from Wednesday at $113.09.  New York Spot Gold was up $5.10 an ounce at $1,149.70 (+0.45%, 4:51 p.m.).  Everyday the financial media devotes much attention to gold, and while there are a few gold bears out there such as Nouriel Roubini, the majority of the pundits and financial professionals are very bullish on gold.  There are many arguments to be made about why you should be a bull on gold, ranging from inflation to deflation, declining gold production, the weak dollar, etc… but the only one I need to know is that central banks have flipped from being net sellers of gold to being net buyers.

Nymex crude dropped 74 cents a barrel today and finished the week at $76.72, after trading above $80 a barrel briefly Wednesday.  As oil peaked at just over $80 at about noon on Wednesday, the dollar was trading its low of the week.  The dollar traded higher both Thursday and today and all the carry trade cowboys that are short must be getting nervous.  We could see a spike higher in the dollar if some event triggers a short squeeze as this carry trade is very, very crowded.  The longer term direction for the dollar is most likely lower, but these squeezes can be brutal to sit tight through if you get caught short.

We have a short trading week next week as Thanksgiving Thursday gives the U.S. markets the day off.  Usually Friday is marked by light volume as many traders take the four-day weekend.  We get a GDP report on Tuesday but the week is light on other economic reports, which might be a good thing.  I don’t know how many more housing numbers the market can take like the ones we got yesterday.  It’s Friday and lets worry about that next week.

Have a great weekend!