What Happened To - MSCC, CAT?

By Dr. Duru written for One-Twenty

September 24, 2006

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Every now and then, something baffling shows up on Wall Street. OK - baffle is a dude selling tickets on every corner out there. But last week's action in Microsemi Corp (MSCC) was a true eyebrow-raiser. Here is the timeline:

  1. Thurs, 9/21: MSCC drops almost 5% on higher than average volume, right to the 50DMA. Sure, the NASDAQ was down a few points, but there was no public news to speak of to partner with the noticeable drop.
  2. Fri, 9/22, during trading day: Two analysts get sour on MSCC. AmTech goes from a buy to neutral. Caris & Company goes from buy to above average (whatever that means). Stock drops 11% on roughly 4x average volume. The public takes heed to the ill winds, but still no other news.
  3. Fri, 9/22, after the close: Ah ha...MSCC issues an earnings warning. Q4 EPS goes to $0.25-0.27 whereas the consensus had it at $0.30. MSCC takes revenue to $100.2-102.2M whereas the consensus had it at $108.3M in revenue. Although MSCC cited weakness across all segments of its business, I would say the announcement does not sound "too bad." The public news took the stock down another 7.4% in the after-market anyway. Should be interesting to see what happens by the close of trading on Monday.
So, well ahead of a sneaky Friday night announcement, folks were selling MSCC's stock hand over fist. They say the market tells you everything you need to know. In this case, even the analysts were trying to give MSCC holders one last warning.

In other news, the Dow Jones Industrial average continues its September tease, ever so slowly creeping toward its all-time high set on January 14, 2000 at 11,723. Unfortunately, only 10 of the 30 stocks in the Dow have even registered positive gains since this record high. Nevermind for now questioning whether the Dow even matters as a useful index. Let's instead look at one of the 10 precious gainers that have led the way: Caterpillar (CAT). CAT has risen 142% since that time (CAT's all-time high at the time was set back in May, 1999). But CAT's leadership status looks like it is in danger. Last week, I pointed to CAT's weakness as a move in sympathy with the downfall in commodity prices. From September 7 to 12, CAT sold off four days straight even as the Dow experienced a small rally. The last day of the sell-off was the smallest daily loss but volume was well above average and the Dow popped UP for 101 points at the same time! CAT sold off from Tuesday through Friday last week - the last two days had volume well-above average, and Friday's volume was twice the average. I suspect CAT is now due for some sort of "relief rally" or counter-trend bounce. Such a bounce could help the Dow finally get over the hump. While I am sure the the Dow can still achieve and make that all-time record even without CAT's cooperation, one really must wonder about what the market is trying to tell us here. To be continued...

In the meantime, be careful out there!

DrDuru, 2006