Email Version, Section 1, Wednesday, 01/12/2000
The SplitTrader.com Newsletter Wednesday 01/12/2000 1 of 1
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In This Newsletter:
Market Commentary - Violent Swings!
Split Announcements - RAZF
Editorial - The Earnings Game: Whisper Numbers Beat Published
Play-of-the-Day - NVLS
Trust busters are talking of breaking up Microsoft. Yahoo led
the Internet stocks lower. These were big stories but neither
drove the market today. Market patterns established since the
first week of January drove Wednesday's trading. Cyclical
stocks, utilities, autos and banking stocks continue to advance.
Although individual investors remain focused on the technology
issues, the blue chips are attracting institutional money at the
expense of the tech stocks. In addition to valuation worries in
the tech sector, the DOW has a better track record during the
first quarter than does the Nasdaq Composite. The DOW industrials
have posted solid gains during both January and February every
year since 1995. The Nasdaq has only two years of consecutive
strong first quarters. Concern that the Nasdaq Composite is still
in a corrective phase haunt the tech sector, making volatility
extreme. Wednesday marked the eighth consecutive day that the
composite traded in a 100 plus point range. We are in the midst
of a convergence of two factors that create market volatility -
earnings season and a rising interest rate environment. Until we
pass through earnings, expect more of the same - a flight to
safety in the DOW and momentum driven swings in the tech stocks.
The DOW continues to trade higher, led by banking stocks and
utilities. The industrials gained 40 points to close at 11551.
Volume on the NYSE was heavy at 974 million shares. Decliners
led advancers 17 to 14. There were 50 new highs to 84 new lows
Wednesday. Leaders in the DOW 30 included GM +3.44, T +2.81, HWP
+3.81, JPM +2.06, and INTC +1.56. Losers included EK -1.81, MSFT
-3.63, SBC -2.12 and DIS -2.75. On the broader market, AOL and
TWX continue lower after their merger announcement, down 4.12 and
6.38 points, respectively. Other notable losers were in the
biotech industry, retracing for a second day after four straight
days of huge gains. Biotech losses were led by PEB -15.81 and
Nasdaq composite stocks continued another day of 100-point price
swings as the market seeks direction. YHOO led the Internet
stocks as the biggest losers on the day. Also declining sharply
were software stocks and the biotechs. The semiconductor
companies continued their advance. The composite gave back 71
points to close at 3850. Volume was heavy at 1.5 billion shares
traded. Decliners led advancers 23 to 18. Notable leaders were
in the chip stocks, including BRCM + 16.5, RBAK +10.06, NVLS
+7.63 and AMAT +6.06. Big losers were once again the high
flying Internet companies, including YHOO -39.81, CMRC -27.44,
KANA -26.00, AKAM -24.44, FMKT -20.12.
The broader markets finished marginally lower as individual
sectors traded mixed. The S&P 500 finished off 0.52% and the
Russell 2000 index lost 0.43%. Advancing sectors were led by the
Philadelphia Semiconductor Index +3.4% and the KBW Bank Sector
Index +2.0%. Losing groups included the CBOE Internet Index -5.18%
and the Amex Biotechnology Index -4.36%.
The bond yield is now nearing the 6.75% threshold with today's
close at 6.71%. Go back to August 1997 to find levels this high.
The bond yield continues to increase due to interest rate worries
and a huge supply of corporate debt offerings competing for money
flows. The equity market continues its disconnect from current
rates, for now.
Following tradition, YHOO sold off with impunity after earnings
were released at Tuesday's close. Even a 2:1 split announcement
was not enough to prevent the stock's traditional post-earnings
selloff as the company warned of revenue growth rates that are
not sustainable. Today's trading was exaggerated by selling that
began in Tuesday's market. Traders were additionally disappointed
that the $0.19 EPS did not beat the whisper number and many had
hoped for a 3:1 split. Despite the selloff, analysts rushed to
raise their price targets, most of which are now placed at $450
to $550. A notable exception was CSFB analyst Lise Buyer who
stated "We are still challenged trying to apply fundamental
analysis to this valuation". Yahoo lost 39.81 points to close
at $357.56. Additionally, YHOO continues to deny reports that
they are shopping for merger opportunities in the wake of the
A published report in USA today sent Microsoft shares lower.
According to unnamed Justice Department sources, the report said
federal prosecutors in the antitrust case have reached a consensus
that MSFT should be split into two to three separate entities.
The most likely scenario, according to the article, was a split
along product lines, with one company producing the operating
system and the remaining products to be controlled separately.
Justice Department officials denied the rumors, but the stock
sold off anyway, down $3.63 to close at $105.81.
Broadband stocks continue to rise on the heels of the AOL/Time
Warner merger news. The deal signals a belief that the next
generation of Internet connectivity will be through cable
broadband. BRCM gained $16.50 on the day. Recent analyst
upgrades from Prudential, SG Cowen and C.E. Unterberg Towbin sent
shares of ADAP $8.62 higher to close at $93.19 Wednesday.
AMAT announced the acquisition of ETEC after the close Wednesday.
The purchase will combine the world's largest semiconductor
equipment company with the leading manufacturer of mask pattern
generation for the semiconductor and electronics industries. Both
companies traded higher before the announcement. AMAT gained 6.25
points, closing at $127.06. ETEC gained 7.31 points to close at
$49.88. In after market trading, ETEC was up another 25 points.
Earnings reports for Thursday include a number of big names
capable of moving the market. Set to release before the market
is chip equipment maker KLAC. Scheduled after the close Thursday
are chip leader INTC, software maker SILK, networking stock ZOOX
and biotech company BGEN. As mentioned earlier, INTC traded up
strong today, helping to lead the entire semiconductor sector
higher. In large part this is due to the normal run-up the stock
sees going into earnings. There is a consensus belief that they
will meet and maybe beat expectations this time around, which is
a departure from the last two quarters. Despite this, there is
also a fear that even a good number is priced in and that traders
will sell the stock in front of the afternoon announcement, which
in turn might drive all the semi's down.
Lined up both Thursday and Friday are significant events, likely
to keep the wild price swings in place. Initial trading activity
will focus on the PPI numbers, to be released Thursday morning
before the market opens. Earnings reports from several market
leaders are due Thursday after the close of trading, followed by
an Alan Greenspan speech Thursday evening. If that weren't enough,
on Friday morning the CPI numbers will be released just as
analysts are deciphering what Uncle Al said the night before.
There is a great likelihood that anything short of decisive
reports will be followed by additional market volatility. Lets
face it, the markets are looking for direction right now, thus
the violent price swings. Even bad news (in the form of a PPI
and / or CPI number's release pointing to inflation) would be
welcomed in the sense that it provided traders with some sort of
bias and market direction. Overly positive numbers would be more
welcomed and might in fact offer the possibility of a "relief
rally". That scenario is a bit of a stretch at this point. Even
if it occurs, it would probably not happen until after the CPI is
released on Friday. If we get numbers that "leave us hanging",
the violent swings are likely to continue as traders try to
determine whether to make the move back to the high tech stocks
they seem to really want to own, or instead continue to rotate
into the cyclicals for some safe harbor. It goes without saying
at this point, but we do want to urge you to use discretion in
initiating positions over the next couple days until the markets
provide some sort of overall direction. Otherwise, if the violent
swings continue, use those stops!
Wednesday, January 12, 2000, before the bell
Strategic consultant Razorfish to issue first stock split
Razorfish, Inc. (Nasdaq:RAZF) came out this morning to announce
that its Board of Directors had approved a 2:1 stock split of the
outstanding common shares for the Company. The record date for
the split is January 20, 2000. The Company's transfer agent will
distribute the additional shares on January 27, 2000.
Razorfish is a US based strategic consultant to international
companies. The Company, founded in 1995, is responsible for
helping client companies by designing digital communication
solutions that "help companies invent and reinvent themselves."
They design the information architecture, as well as the
necessary customized software to implement their solutions.
Their clientele includes companies like Charles Schwab, Nissan
and Ericsson. The Company IPO'd this past April (27th) at $16
per share. Razorfish has 200 million shares authorized and will
have approximately 90.2 million shares issued and outstanding
after the split. Today's split announcement marks the first split
of the Company's shares.
Shareholders of RAZF have seen a dramatic rise in share value over
the last 3 months, as the stock broke through tough resistance at
$40 per share and went on to trade to the recent high of $99.
With over a half million shares trading hands on an average daily
basis, this stock has attracted the attention of momentum investors
on Wall Street. We have been anticipating an announcement out of
the Company for the last month, having added them to our Split
Candidates List in December. We anticipate that the split
announcement will generate the needed enthusiasm necessary for a
successful split run and will look to add the stock to our
Recommended Split List in the very near future. Please check
back shortly to view a complete profile of RAZF.
The Earnings Game: Whisper Numbers Beat Published Estimates
By Cindy Christ
America's raging love affair with game shows like "Greed" and
"Who Wants To Be A Millionaire" has come to Wall Street.
For the complete article go to:
NVLS - Novellus Systems, Inc. $141.31 +7.56 (+16.43)
Sunday's Write Up:
The Nasdaq found it's footing just in time to save NVLS from
having to retrace violently to catch up. What we mean is, NVLS
showed great relative strength during the market selloff and
couldn't have held up much longer. Early Friday, NVLS showed
signs of weakening as it traded below support at $117, all the
way down to $114.75. When the market did bounce back strong
Friday, NVLS surged 6% higher on the day, with a great final
half-hour performance in which the stock picked-up an extra 3
points to close at a new daily high. Our support is now at
$120 (10-dma at $120.57), then $117. Resistance is $125, then the
all-time intraday high of $128. This week two major chip firms
report earnings, VTSS on Monday and AMCC on Thursday, both after
the close. The general market will be impacted by both set of
earnings, as well as the PPI and CPI reports late in the week,
so watch for continued volatility. We look to exit prior to the
payable date on the 18th of Jan.
It's a stretch, but the semiconductor stocks put in a stellar
performance Monday after the AOL/Time Warner merger was announced.
The reason: the merger is another confirmation that cable broadband
is the future of Internet connectivity. Broadband chipmakers have
been the star players in the semiconductor industry lately. NVLS,
a chip equipment company, also ran on the news. The chip stocks
gave back about 50% of Mondays gains, but that was to be expected
in Tuesday's market retracement. Tuesday's trading was bolstered
by industry leader INTC, which received an analyst upgrade. The
stock is now trading far above its 5 and 10 day moving averages,
so support is way below current levels. NVLS is now less than a
week away from its Monday, January 18th payable date. We are set
for an exit by Friday's close. Current price levels offer only a
high-risk entry, but traders already in are enjoying a nice gain
while the stock is positioned to challenge resistance at $140.
Retracement to first support levels is at $125.
The stock performed very well today, in large part due to the
momentum the entire semiconductor industry has experienced since
the SOX broke back above the 700 level on Monday. Much of the
sector strength can be attributed to INTC, who reports tomorrow
after the market. As for the Company, on Wednesday they received
a price target upgrade from the semiconductor analyst over at ABN
Amro, who upped his price target to $180 from $165. The analyst
also increased his estimate for growth in 2000 from 28% to 35%.
This news is in addition to the fact that the stock is in the
final stretch of its split and earnings run, with the payable date
for the split set for this Monday (18th), the same day the Company
is scheduled to release earnings. Regarding entering a new play
in NVLS tomorrow, we suggest that you look to see which way the
market starts, based on the Retail Sales and PPI numbers. If the
market does look positive in the morning, look to open on any dip.
If the stock does retrace, the 5-dma ($131) looks like a good level,
otherwise, the real support is back at $120. The stock set an
intraday high yesterday ($145.63) and today's close represents a
closing record. With that being the case, there is no overhead
resistance, so this stock may very well run in an up market
tomorrow. Once again, we do caution that you confirm positive
market direction prior to initiating positions and be aware of
the fact that INTC may sell off in advance of the earnings
release, in which case the entire sector is likely to sell off
Picked on Jan 4th @ $122.12
Change since picked +19.19
Chart = http://quote.yahoo.com/q?s=NVLS&d=3m
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in making an informed decision regarding how to trade stock
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