U.S. shares struggle to find their footing

Dow slumps; Nasdaq a whisker higher

Goldman makes bold chip call

NEW YORK (CBS.MW) — Blue chip stocks declined modestly Monday while technology issues managed a push into the plus column after six straight sessions of losses in the aftermath of a positive semiconductor call from Goldman Sachs.

Within technology, chip and hardware issues garnered the best buying interest while the broad market saw an upswing in the oil, oil service, natural gas, biotech and paper groups. In the meantime, airline, financial, retail and cyclical issues descended. Check market stats and latest sector performance.

The Dow Jones Industrial Average ($INDU) fell 3 points to 10,411.

The Nasdaq Composite ($COMPQ) gained 6 points, or 0.3 percent, to 1,963 while the Nasdaq 100 Index ($NDX) rose 12 points, or 0.8 percent, to 1,630.

The Standard & Poor’s 500 Index ($SPX) edged up 0.1 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks added 0.1 percent.

Volume stood at 140 million on the NYSE and at 229 million on the Nasdaq Stock Market. Market breadth was marginally better, with advancers taking out decliners by 13 to 12 on the NYSE and by 14 to 13 on the Nasdaq.

On the fund flow front, Trim Tabs said equity funds lost an estimated $3.1 billion in the three days ending Aug. 9 for a monthly rate of $32.1 billion. The fund flow tracker said areas perceived as higher-risk got the largest outflows. Trim Tabs remains neutral on the market, citing the continued drag from large new convertible offerings in recent weeks sold by firms such as Lucent Technologies and Nortel Networks. And liquidity plunged to negative $8.5 billion last week — the lowest since negative $13 billion in the week ending June 14 – due to the steam of new offerings and increased outflows. Trim Tabs said its stance is also a reflection of dwindling cash takeovers. “Until corporate investors turn longer term bullish, we won’t either,” the firm concluded.

Big Goldman call on chips

Goldman upgraded the U.S. semiconductor device sector to “overweight,” indicating that data points are no longer universally negative and that fundamentals are likely to strengthen in the fourth quarter — even though the recovery may be uneven. The Philly Semiconductor Index ($SOX) got a 0.7-percent spurt and was the upside leader within the tech sector.

“The recovery writing is on the wall and we don’t see how investors will be able to resist the inflection point,” Goldman analyst Terry Ragsdale wrote in a research note. The brokerage said the offsetting problem is that valuations “stink” and will “limit the ultimate upside.”

Goldman added that its enthusiasm for datacom/wireline telecom plays — such as programmable logic outfits — is limited by the expectation that both inventory and demand recovery in the segment is likely to lag that of other groups.

Goldman upgraded Intel (INTC), Analog Devices (ADI), Maxim Integrated Products (MXIM), Broadcom (BRCM), Conexant (CNXT) and Microtune (TUNE) to its “recommended list.” Goldman also upped Qualcomm (QCOM) to its recommended list as part of its broad chip sector call. And Linear Technology (LLTC) was raised to a “market outperformer.” Intel gained 1.2 percent, Conexant 7.4 percent, Qualcomm 2.5 percent, Broadcom 3 percent and Microtune 13.4 percent.

Meanwhile, Lehman Brothers analyst Seth Dickson said despite positive comments from Texas Instruments (TXN) Friday, he believes analog stocks are now fully valued and would continue to remain cautious on the group in the near term.

“Given economic troubles internationally, weaker end demand and channel inventory issues, we are not ready to call a bottom in analog stocks and believe there are further risks to downside earnings-per-share revisions to the third and fourth quarters unless things change dramatically,” Lehman said in a note to clients. The analyst said he believes Analog Devices will meet the low end of pre-announced financial targets. On Friday, Texas Instruments said in a conference Call hosted by Merrill Lynch that it’s seeing some stabilizing in its backlog and has begun to see some new order activity in the analog segment. Texas Instruments gained 1.6 percent, adding to Friday’s upside.

Individual stock action

Ciena (CIEN) fell 1 percent ahead of its quarterly results this week. UBS Warburg lowered its fiscal 2001 and 2002 EPS estimates on the fiber-optic outfit due to lower expectations for sales and gross margins and maintained its “hold” rating on the stock. Among other stocks in the group, Lucent fell 1.1 percent, Nortel 0.1 percent while JDS Uniphase added 1.1 percent.

UBS Warburg upped its view on Xerox (XRX) to a “buy” from a “hold” rating as it views the stock a “compelling management change” and “liquidity stabilization story” in the near term, with potential for meaningful earnings improvement in 2002 and 2003. The stock rallied 4.6 percent in recent action.

Ford (F) declined almost 4 percent on the wings of a downgrade from UBS Warburg to a “reduce” from a “hold” to reflect worsening conditions. Dow stock General Motors shaved 0.6 percent.

Treasury focus

Treasury bonds turned higher across the board. The 10-year Treasury note was up 1/32 to yield ($TNX) 4.98 percent while the 30-year government bond rose 2/32 to yield ($TYX) 5.50 percent.

No data is set for release Monday. Among this week’s main events: the July retail sales report, due out Tuesday; July industrial production and capacity utilization, expected to hit the wires on Wednesday; the July consumer price index, out on Thursday; and July housing starts and building permits, also due out on Thursday. and economic calendar and forecasts.

In the currency sector, dollar/yen added 0.1 percent to 121.96 while euro/dollar climbed 0.6 percent to 0.8988.