The Dow tumbled on Friday after a warning by computer maker Dell that companies worldwide are cutting back on technology spending spooked the tech sector.
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PC CRASH: DELL BRINGS DOWN TECH
Not only did comments from Dell about technology spending spark fears of weakness, so did the company's surprisingly steep fall in quarterly profit. Shares of Dell, the world's second-largest computer maker, fell 13 percent, and dragged down rival IBM.
Dell was up 25% over the last 6 months, explains Pete Najarian, and they disappointed the market. The biggest hiccup is that Dell slashed prices to gain market share – but they slashed them so much they hurt themselves. I like Hewlett-Packard and IBM much more.
Morgan Stanley says it’s a buy at $22, adds Joe Terranova. But I agree with Pete. Play Hewlett-Packard.
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GOOGLE SELLOFF
Google shares are nearly 5% lower on the week due to concerns of slowing earnings growth. Meanwhile, an analyst at William Blair & Co. trimmed his earnings estimates slightly for the Internet giant, due to a stronger dollar.
I sold my Google earlier in the week, says Joe Terranova. The technicals appear to be broken. Something is wrong here.
I don’t see it as a dollar story. counters Zach Karabell. Google is still growing and I think a lot of advertising will go onto the web and they will benefit.
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IN THE BANK
Financials managed to hold their weekly gains with the XLF finishing higher on the week on hopes the credit crisis is easing.
I would be selling into the strength, says Karen Finerman. I don’t see the issues plaguing the banks as being anywhere close to being solved. I’m short the XLF, BB&T Corp. and Capital One .
I think you can short banks in the short term, adds Zach Karabell. Or you can get long companies such as Citigroup for the long-term. I’m talking a 3-5 year time horizon.
Goldman, Lehman and Merrill all performed on Friday, adds Pete Najarian. In the short term I think investors are expecting these stocks to move higher.
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OPTIONS ACTION: XLF AND WELLS FARGO
Increased volume in up-side call trading suggests to Pete Najarian that investors are hoping for short term bumps in the Financial Select Sector SPDR.
Increased volume in the October 34calls suggests to Najarian Wells Fargo could go higher.
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TOPPING THE TAPE: HOME SWEET HOME
The Homebuilders ETF closed 5% higher this week despite tepid data on the housing front. However, the S&P/Case-Shiller Index decreased less than economists had forecast.
There’s still some trouble out there, says Karen Finerman. If you want to play the space, I’d only look at companies with little or no debt on their balance sheets, such as MDC .
I don’t know, counters Pete Najarian. There are probably better places to make money.
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SOLAR SHINING AGAIN
The solar trade remains white hot with LDK Solar signing a big deal to supply solar wafers to Hyundai.
I think investors should be cautious in this space, says Pete Najarian. It’s very difficult to judge the P/E levels. I’d stick with tech companies that are involved in solar such as Cypress or IBM .
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TAKE YOUR POSITION: COAL
Investors are trying to determine the next trend in energy. For the week coal producers including Massey , Arch Coal, and Consol all finished in the red.
Joy Global comes out with earnings on Wednesday, explains Pete Najarian. I think if it pulls back right ahead of earnings there’s an opportunity. And if you’re playing the rails which transport coal, it might be time to take profits.
I’d play the coal ETF , counsels Joe Terranova. It’s a safer bet.
