Knocking
Out Craters: FORM, UTSI, EBAY
By Duru
January 6,
2005
This has been
one rough week. While the selling finally let up in the major market indices
today, many stocks, especially tech stocks, continued to suffer heavily.
Here I take a
look at two stocks whose selling portended vicious earnings and revenue
warnings. The implication is that we probably need to take these mini-collapses
very seriously. Greenie and the
Fed fretted in last month's meeting that capital spending on tech was softening.
I think we should heed their warning big-time!
(Click here
for disclaimer that applies to this market analysis)
FORM
FORM is one of
my favorite semiconductor stocks. This stock even made it into my inaugural piece on the madness in the
markets. Well, it looks like the sellers finally got the best of FORM. After
the market closed they warned of a serious shortfall in their expected earnings:
"FormFactor Inc…lowered its outlook for its fiscal fourth quarter ended
Dec. 25, 2004, cutting earnings per share by 6 cents from its previous view of
18 cents to 19 cents per share….preliminary revenue was $46.1 million for the
fourth quarter, lower than the $50 million to $53 million it expected."
Traders and investors responded promptly by cratering the stock almost 17% to
about $19/share. If this level holds it will take FORM back to the lows from
the last earnings report that folks first hated and then loved. Looks like the
first emotion was the correct one!
A collapse
back to $19 puts FORM deep under the 200DMA and into serious selling territory.
Expect any bounce to stall out at the $21 level. I suspect the NASDAQ is going
to have to do some serious repairing before stocks like FORM can begin any kind
of real recovery.
UTSI
UTSI is a
stock I have followed ever since its IPO. I have long been a fan but have been
in fair-weather mode. I missed most of its post-bubble recovery as I had given
up on riding my IRA to stardom with it. However, things in 2004 really spiced
up for UTSI. I wrote
about some of the drama as a guest on Mike's site in mid-October. Back then,
I noted that there was an explosive divergence of opinion between the insiders
who were buying the stock, and all the analysts who had been regularly deriding
UTSI's prospects. For the rest of the year, the insiders were mainly winning
the battle. But reality can be a harsh task master. After hours tonight, these
same insiders had to stand down and admit that they have run into a serious
bump in the business: they cut 4th quarter revenue expectations from
$875-885M to $740-745M. Analysts were expecting 1 cent per share in profits,
but UTSI says now they will lose 40-45 cents. However, they
expect to nab 20-22 cents in profit next quarter on revenue of $770-780M, while
analysts were only expecting 12 cents on $811 in revenue. I am thinking some
profits are getting shifted out. For those of you speculating in
Since I had
been betting alongside the insiders, I got nailed along with the rest of the
faithful. Unfortunately, I allowed the slow and steady rise in the stock lull
me out of a previously hedged position. Interesting to note that the stock sold
off right to the levels ($16 and some change) at which insiders were buying
their shares back in September. Do I daresay this is a buying opportunity if
the stock holds? Yikes!
Also notice
how UTSI never did break resistance at the 200DMA. It barely nicked those
levels on Tuesday. Needless to say this moving average will be a major line to
watch as the stock attempts to recover (again) over the coming months.
EBAY
It took the
entire week, but finally some of the big-cap, blue chip tech stocks cratered
below their 50DMA. This can be seen as the NASDAQ also finally closed a hair
below this important support level. This is where things can really get
precarious. While a fake-out breakdown could be at work, this kind of weakness
so early in a year that is supposed to be mildly fruitful is a bad sign in my
book. Let's take a look at EBAY as it could contain a big warning for us:
I will be
watching EBAY very closely from here as it should be an excellent canary in the
coalmine. I cannot even imagine the NASDAQ being strong with a stock like EBAY
cratering. And I cannot imagine the rest of the market staying healthy with a
cratering NASDAQ.
The madness
continues, so be careful out there!