Email Version, Section 1, Wednesday 02/28/01
The SplitTrader.com Newsletter Wednesday 02/28/2001 1 of 1
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In This Newsletter:
Market Commentary - We're No Angells
Definition of the Day
Wednesday's Split Announcements - BAX, NDN
Thursday's Play-of-the-Day - LTR
We're No Angells
And thank goodness for that. Imagine the loss of credibility if
we were to say a stock had a 60 percent chance of rising one day
and then an 80 percent chance the next. Then, imagine the loss
of credibility if we were to say, "only kidding," if our stock
If you can imagine such tomfoolery, then at least you can
empathize with Bear Stearns chief economist and former Federal
Reserve governor Wayne Angell. If you'll remember, last week
Angell, with the backing of fellow Stearns economist John Ryding,
said there was a 60 percent chance that the Federal Reserve would
cut the fed funds rates by 50-basis points this week. He then
fortified his prediction on Monday by saying there was an 80
Of course, we still have two more days for Angell's prophesy to
come true; however, today was considered by many market watchers
to be Angell's window of opportunity because of Federal Reserve
Chairman Alan Greenspan's testimony before the House Financial
Services Committee. And if you missed Greenspan in action, you
missed him bursting Angell's balloon. The Fed chairman said that
while consumer confidence has indeed weakened and "will require
close scrutiny in the period ahead," the data suggest "that
consumers have retained enough confidence to make longer-term
commitments." Translation: Things are bad, but they're not that
Thanks to Greenspan's House testimony, Angell now believes that
there is no chance of an inter-FOMC meeting interest rate cut
this week (given the former Fed Governor's powers of
prognostication, don't be surprised if the Fed cuts rates 50-
basis points tomorrow).
Despite Angell's undressing today, the market had rallied Friday
and Monday on speculation that a rate cut would be forthcoming,
but then sold off yesterday on a weak consumer confidence report,
which is now off 25 percent from its peak last spring. The
selling continued today as interest rate hopes faded.
Not surprising, most of the selling occurred in the New Economy.
The Nasdaq Composite Index (COMPX) tanked another 55.99 points,
or 2.54 percent, to 2,151.83 - a level not seen in 26 months.
Moreover, for February, the COMPX dropped 22.4 percent, its
third-worst monthly outing in its 30-year history.
With today's capitulation, the COMPX is now a full 100 points
below former key support at 2,251, which was the January 3rd low.
Many technicians are now eyeing 2,000 for support.
Psychologically, this is an important level because many market
traders instinctively look to round numbers. What's more, 2000
coincides with a base formed in December 1998.
Chart of the NASDAQ Composite:
Much has been made of the fact that the COMPX is now trading at a
58 percent discount to its March 2000 high of 5,132, but keep in
mind, the selling didn't fully kick into gear until early
September. Over the past six months, the COMPX has seen 48
percent of its value evaporate.
Cisco Systems (Nasdaq:CSCO), Dell Computer (Nasdaq:DELL) and
Microsoft (Nasdaq:MSFT) not withstanding, much of the COMPX's
woes can be attributed to its semiconductor components. Xilinx
(Nasdaq:XLNX), Applied Materials (Nasdaq:AMAT) and Rambus
(Nasdaq:RBMS) are all trading at 60 percent discounts or more to
their 52-week highs. Not surprisingly, most of this loss of
market value coincides with the September 2000 through February
2001 COMPX sell-off.
Among the semiconductor issues, though, Intel (Nasdaq:INTC) has
extracted the largest chunk of COMPX flesh. Since September 1,
2000, the chipmaking giant has shed $312 billion of market value,
falling from an all-time high of $75.82 to today's close of
Unfortunately, traders spooked by the New Economy today could
find no sanctuary in the Old Economy. The Dow Jones Industrial
Average (INDU) finished down 141.60 points, or 1.33 percent, to
10,495.28 after trading higher 45 points in anticipation of a cut
in the fed funds rate. But once it become obvious that none
would be forthcoming, the INDU sold off through the remainder of
the session. Of the 30 INDU stocks, only seven were able to
close in the black. And of the seven, the largest dollar gain
came courtesy of pharmaceutical giant Johnson & Johnson
(NYSE:JNJ), which closed up a paltry $1.38 to $97.33.
With today's close, the INDU is once again trading below supposed
support at 10,500 and at an 8 percent discount to its 52-week
high of 11,425.
So, with the COMPX down 58 percent and the INDU down 8 percent,
are we now officially in bear-market territory? According to the
final arbiter on such matters, the S&P 500 Index (SPX), that
depends (sorry, for being so wishy-washy). With today's close of
1,239.94, the SPX is trading at a 20 percent discount to its all-
time and 52-week high of 1,553, which means we are in a bear
market (a bear market being a 20 percent pull-back).
However, if the drop in the SPX is calculated using closing
prices only, we're not in a bear market. Based on closing
prices, the SPX is trading at a 19 percent discount to its 52-
week closing high of 1,527.
You make the call. To me, it feels like a bear market.
One place where investors and traders did find sanctuary today
was the bond market. Despite the disappointment of no fed funds
cut, the 10-year Treasury note finished up 12/32 to yield 4.91
percent while the 30-year government bond moved higher 9/32 to
yield 5.335 percent.
Over the past six months, 10-year note holders have seen their
investment appreciate roughly 7 percent while 30-year bondholders
have seen their holding's appreciate roughly 8 percent (not the
most exciting returns, to be sure, but it beats a 48 percent loss
On the economic docket today, fourth-quarter GDP was revised
downward to an annualized 1.1 percent rate, which marks the
slowest GDP growth rate since 1995. Not surprisingly, personal
consumption slowed during the quarter to a 2.8 percent annualized
rate, the slowest since early 1997.
Tomorrow traders will be eyeing the National Association of
Purchase Managers Index (NAPM), which is a monthly composite
index based on surveys of 300 purchasing managers nationwide
representing 20 industries regarding manufacturing activity. An
index value above 43.9 generally indicates an expansion of the
overall economy. Don't look for that number on Thursday; the
market is expecting a reading of 42.4 percent.
Okay, so what's a trader supposed to do? I know at least a few
of you are still expecting an inter-FOMC interest rate cut. I
wouldn't hold my breath. The fed funds future market is priced
for a 4.93 percent rate in April, which means traders are
expecting at least a 50-basis point cut for March. However, for
those folks holding out hope for a cut between now and March
20th, the futures market is priced for a 30 percent chance of
that event occurring. In other words, there isn't much of a
Nevertheless, that doesn't mean all is lost for traders long this
market. Many market pundits are calling for the COMPX to bottom
between 2,000 to 1,800, or 7 to 15 percent below its current
level of 2,151. Let's face it, in this market we could be there
by the end of the week given recent pessimism. But I think this
translates to a risk/reward scenario that favors the long trader,
at least the longer-term orientated long trader.
Because of overwhelming market pessimism, I'm becoming more
bullish. I think the market needs a sufficiently high wall of
worry to get back on the right track, and I think we now have
that wall (as faithful readers of this commentary are undoubtedly
Finally, I like this market just for the fact that some semblance
of normalcy has return. In 2000 traders had a penchant for
treating bad news as good, and vice versa. Remember when traders
would sell on a particularly strong employment report or buy
despite a company reporting accelerating losses? Now, many of us
have come to our senses and realize that marginally higher
unemployment curbs consumer confidence, and, therefore, consumer
spending, while growing losses and earnings disappointments are
indeed an economic negative.
With that said, after a two-year hiatus, I think we are finally
re-entering a market that favors the rational trader, so trade
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Definition of the Day
Momentum divergence is the deviation of price and volume
demonstrated as a continuation of a trend without the necessary
momentum to sustain the move.
For the complete definition, please go to:
Wednesday's Split Announcements
Wednesday, February 28, 2001, 11:58 am EST
Before today's opening bell, Baxter International Inc. (NYSE:BAX)
announced that the board of directors authorized a 2:1 stock
split, pending approval by shareholders to increase the number of
authorized shares to one billion.
For the complete announcement, please go to:
Wednesday, February 28, 2001, 2:03 PM EST
99 Cents Only Stores to Split Stock Again
During regular trading today, the board of directors of 99 Cents
Only Stores (NYSE:NDN)announced a 3-for-2 common stock split,
payable March 20, 2001. Shareholders of record on March 14 will
receive one additional share for every two common shares owned.
For the complete announcement, please go to:
Thursday's Expirations by Payable Date
American General (AGC) splits 2:1
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SplitTrader.com Play Recommendations.
Play-of-the-Day is our number one play recommendation for the
following trading day.
Updates are just that - updates on continuing plays
New plays are brand new for the newsletter.
Closing plays are plays that we feel have lost the advantage.
You will see:
Stock Symbol, Company Name, Closing Price, (change for the week)
Picked at date and Change since picked
BoD = Board of Directors meeting
ADV = Average Daily Volume
dma = daily moving average
At the SplitTrader.com website, we have comprehensive profiles
for each stock that we are playing or have played in the past, as
well as hundreds of others. Please take the time to visit the site
to view the profile of the stock(s) you wish to learn more about.
Wednesday, February 28, 2001
LTR - Loews Corporation $108.67 +2.27 (+10.17)
Loews Corporation is a diversified holding company that
provides property, casualty and life insurance, hotel
operation services, and offshore oil and gas drilling
services. The company also manufactures cigarettes, watches,
and clocks. The stock has been on fire over the past year.
Shares of LTR hit a four-year low of $38.25 last March. On
Tuesday, the stock hit an intra-day high of $106.90,
representing a 178% gain and a new three-year high. On
February 20th, the company announced a 2:1 split, payable on
March 20th, and we believe that LTR has started its split run.
Going forward, support is the February 16th intra-day high of
$105.40 with additional support at Monday's intra-day high of
$103.06. Resistance is the 12/5/97 close of $107.56 and then
the 11/21/97 close of $108.50. Traders may consider entry
points on a bounce off of $105.40 or a breakout above $107.56
on volume of at least 225,000 shares by noon. We plan to place
stops at $98.50 to limit potential losses.
Loews put in what we feel is a breakaway gap on Wednesday.
The stock opened up $1.95 out of the gate and followed through
with an additional $0.31 by the end of the session. The MACD
issued a buy signal on this strong move higher and OBV notched
a new high. Even though the past two days has seen the stock
appreciate 10%, the RSI is indicating that the stock has a
ways to go before becoming overbought. Going forward, we are
anticipating that the gap created today will provide support
at the $107.50 level. Resistance may very well come in at
$110, which also coincides with the highs made in 1998. Lower
risk entry points may present themselves with a bounce off of
$107.50 on volume of at least 200,000 shares by midday or a
breach of today's high of $106.90 on similar volume by midday.
We are keeping our stops at $98.50 until we have a little more
breathing room to adjust them higher in order to lock in
Picked on February 27th @ $106.40
Change since picked +2.27
Stop Loss @ $98.50
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