Email Version, Section 1, Monday, 04/17/2000
The SplitTrader.com Newsletter Monday 04/17/00 1 of 1
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In This Newsletter:
Market Commentary - Doctor! It Has a Pulse!
Monday's Split Announcements - None
Editorial - Citigroup Posts Strong 1Q Results
Monday's Expirations - PHG and MFNX
Play-of-the-Day - SDLI
Doctor! It Has a Pulse!
Our amoral mistress again reached out to embrace us as the stock
market staged a solid rally off of last week's severe punishment.
This stage of the correction could be most accurately described
as a margin massacre. In this column I have repeatedly urged you
to stay off of margin and if you buy anything, make sure it is a
major name with solid fundamentals. Margin calls are destroying
the former favorites of the individual momentum investor. It has
long been suspected that much of the rise in the likes of ARBA,
MSTR, PUMA, AFFX, PDLI, INSP and (list your high-flyer here) was
due to small lot buying (orders of 1000 shares or fewer) from
individuals pressing their profits. When the margin calls came
last week there was nothing left to sell except these free
falling stocks which just exacerbated the price decline. Tech
stocks with heavy institutional sponsorship, INTC, CSCO, AMAT and
EMC were also hit with suspected Hedge Fund margin call selling
on Friday. But these stocks were the first to attract the
sideline cash from Mutual Funds while the secondary and tertiary
tech stocks were left lying on the backs of their shells like so
many flipped turtles in the sun.
There has been a lot of talk that we have not seen a bottom yet,
because investors are still too complacent and there has not been
enough pain. In my informal weekend poll I found a lot of pain
out there. I strongly suspect that those that kept averaging
down on their favorite stocks from the October-March rally have
suffered as much pain as they can handle. Those commercials
where people are subletting their kid's bedrooms could become
reality and I strongly suspect that people who have quit their
jobs to trade for a living are seriously rethinking that
decision. There is plenty of pain out there to signal a bottom.
The NASDAQ enjoyed its largest point gain ever on the third
largest volume day in history. The NASDAQ was up 217 points to
close above resistance of 3500 at 3539. Despite the strength in
the Index, it was dominated by the big names as advancers failed
to keep pace with decliners at a 17-26 ratio. Volume was 2.4
billion shares. The leaders were chip stocks, with INTC up 12
1/2 ahead of tomorrow's earnings report. ALTR was up 11 7/8
because the stock will be added to the S&P 500, AMCC up 33 1/8
and AMAT up an incredible 16 5/16 to close at 96 5/8, after
trading as low as 78 3/16 in the early going. Other huge winners
included CSCO up 9 1/2, QCOM up 11 11/16, ORCL up 11 9/16, CMGI
up 12 15/16 and JDSU up 18 3/8. All of the stocks mentioned
above are components of the NASDAQ 100 Index (NDX) which greatly
outperformed the overall NASDAQ Index. It was a very strong
rally today. We got the opening capitulation selloff followed by
the predictable bounce. The ensuing rally was strong and mostly
stable throughout the day with a brief pullback that saw the
Index get back to nearly even, probably due to some more mid-day
margin selling. The powerful rally into the close is an
encouraging sign that the rebound is not over and we could see
some more gains this week.
The story was nearly the same over at the DOW, which was
primarily driven by the tech names that are a part of the Index.
The DOW was up 276 to close at 10582 with volume on the NYSE of
1.2 billion. There were 13 advancers versus 17 decliners as the
money showed for the biggest names. The big winners in the DOW
included IBM up 8 1/4, HWP up 10 3/4 and INTC up 12 1/2. One
noticeable laggard was MSFT, which only managed a 1 3/4 gain.
Outside of tech were the following advancers; GE up 7 3/8, PG up
6 3/8 and JNJ up 3 15/16 on an upgrade from Bear Stearns.
Citigroup had a very nice day after posting a solid earnings
report that saw the company beat the Street by a whopping $0.26.
The $1.04 compares favorably to last years report of $0.68.
Citigroup was up 2 to $59 5/8, still below the 52-week high set
last week at $65 7/16. Another DOW component, Ford (F), posted
excellent earnings of $1.70 a share beating estimates by $0.12.
Merrill Lynch (MER), another important denizen of the NYSE,
announced a first quarter profit of $2.38 which blew away
estimates by $.55. MER closed unchanged at $90. Texas
Instruments was very strong all day in anticipation of the
earnings announcement after the close. TXN was up 25 3/16. The
Company reported earnings of $0.55/share, which was $0.02 ahead
of estimates. TXN was down 4 in after hours trading at the time
of this writing.
The big sector index winners were; Semiconductor's (SOX) up 117
points or 13%, Computer Tech (XCI) up 139.28 or 10%,
Pharmaceuticals (DRG) up 6 or 2% and Banks (BKX) up 13 or 2%.
Losers included; Oil and Gas (XOI) down 13 or 3% and Gold and
Silver (XAU) down 1 or 2%.
Treasury's were last week's safe haven for fleeing stock cash,
and predictably, the bond market was beat up badly as stocks
rose. The 10-year was down a full point and is now yielding
6.03%. The 30-year was down 2 points and is now yielding 5.93%.
We had a bit of merger news emerge from last weekend as major
electronics manufacturer, Sanmina (SANM) agreed to acquire rival
Hadco (HDC) for $1.3 billion in stock. SANM was up 1 5/8 to
close at $50 15/16 and HDC was up a paltry 7/8 to close at $60
1/2. In the consolidating Casino Industry, Harvey's has agreed
to buy Pinnacle Entertainment (PNK) for $631 million. Although
the offer prices PNK at $24, the stock only managed to climb to
$20 1/16 due to the fact that Harvey's (which is not publicly
traded) has not yet secured financing for the deal.
Here are some of the biggest earnings reports for Monday, that
have not already been mentioned.
Vitesse Semiconductor (VTSS) announced after the close and beat
estimates by a penny coming in at $0.16 a share. The stock was
up $18 3/8 to close at $73 1/6.
Novellus (NVLS) announced after the close that it crushed the
Street's estimates by 6 cents with earnings of $0.45. The stock
was up $12 3/4 to close at $53 1/2. NVLS was up during after
Eli Lilly (LLY) announced earlier in the day it beat estimates by
2 pennies coming in at $0.63 per share. The stock was up $2
Charles Schwab (SCH) announced earlier in the day that it beat
estimates by 1 penny coming in at $0.33 per share. SCH was up 1
1/2 to close at $42.
The key earnings reports due out tomorrow are; America Online
(AOL), Delta Air Lines (DAL), EMC Corp (EMC), Sprint (FON) and
Sprint PCS (PCS), Freddie Mac (FRE), IBM, Intel (INTC), Johnson
and Johnson (JNJ), Philip Morris (MO), Qualcomm (QCOM), Teradyne
(TER), Tellabs (TLAB) and Wells Fargo (WFC). This is by no means
a complete list. I strongly urge you to call the Investor
Relations Department of each and every stock you own to confirm
earnings release dates.
There are a few key events that should dictate the rest of this
week's action. With the market closed on Friday in observance of
Good Friday, Options Expiration has been pushed to Thursday. We
can fully expect a counter-trend rally to continue with some
expected volatility especially Wednesday and early Thursday.
Look for some panic buying of today's monster comeback stocks as
money managers start kicking themselves for not buying the fire
sale prices of some of their favorite stocks. The secondary and
tertiary stocks mostly failed to rally today and should continue
to be under pressure as more margin calls continue to come due.
If we can get some solid surprise numbers from the major names
coming out with earnings tomorrow after the close, this rally
could extend until at least Wednesday morning.
Tomorrow morning will see the release of the Housing Starts and
Building Permits number. If the number is benign we can fully
expect a solid follow through rally on the open tomorrow with the
likelihood of a market similar to today's with strength growing
steadily into the close.
Last week I pointed out that the Put/Call Ratio was at a very low
.33. This contrary indicator correctly predicted further losses
for the market. With the Ratio now sitting at a "normal" .72 do
not look for too much of a rally after tomorrow. We are likely
to see the highs for the week sometime Wednesday morning as most
of the expiration maneuvering and "blue light special" buying
will mostly be over. Everybody, including this trader, will be
more than happy to take a three or perhaps four day weekend to
evaluate this market and come out firing next week. Do not be
surprised if a strong rally this week is followed by more selling
and major portfolio restructuring early next week. Although I
fully expect a strong market tomorrow, a very aggressive trader
could attempt to buy on weakness at the following key levels; DOW
10500, NASDAQ 3500 and NDX 3500. I would not stay long if those
numbers are violated because we could retest today's lows pretty
quickly. Major resistance can be found at the following levels:
DOW 10900, NASDAQ 3900 and NDX 3800. Stick with the best and
strongest names in the market!
Good Luck! And may all of your trades be winning ones!
I have been subscribing to your site for a few months and I have
gained quite a bit of knowledge thanks to your expertise. I am
telling as many people as I can about this site and it is all
Being a novice, I have heard the term "Amateur Hour" quite often.
Can you please explain what that means?
It's been said that amateurs control the open, while
professionals control the close. In reality, that's probably an
oversimplification, but certain patterns develop throughout the
day, including "amateur hour".
Consider Friday's huge selloff. When investors came home Friday
evening to watch the evening news, they learned that both markets
had undergone the largest selloff in history. Many figured the
selling would likely continue, so they called their broker first
thing Monday and said 'sell at the open'. The huge volume of
sell orders started the market lower, then the professionals
stepped in on the gap to buy up stock.
One of the best examples of "amateur hour" is the opening gap
(higher or lower). Unless a gap is caused by a truly significant
news event, professional traders often "fade the open". We've
all been burned by the "head fake", and not just once. Here's an
example: The Nasdaq opens 20 points higher, our target stock
opens up 2 (without great news, but maybe on an analyst
reiteration of 'buy'). Amateurs rush to buy it, thinking that
they are in on the ground floor of a huge move up. The stock
advances another 2 points, now we're up 4, the Nasdaq is up 40,
all within the first 20 minutes. Soon, a resistance level is
hit, buying dries up and the stock begins to retrace, amateurs
rush to get out, they sell and professionals short the stock.
Soon the stock is trading in negative territory.
The opposite effect also occurs on an opening gap down. Traders
sell out within the first half-hour of the open, then momentum
slows. Now amateurs realize they made a mistake and buy in once
again. Professionals join them.
If you are interested in purchasing a stock and find that you
have missed the initial run-up, you will often find that a stock
will either reverse direction or pause and consolidate before
moving higher. You then have an opportunity to enter the trade
with a better idea of the day's support and resistance levels.
Keep in mind that this is usually relevant only to traders. Long
term investors shouldn't worry about daily peaks and valleys. If
your timeline is a only a few days to a few months, the opening
hour of trading is only significant in terms of your entry point.
The primary consideration is of course, buy low, sell high (or
sell high/buy low). In that respect, we advise buying on a move
over resistance or on a confirming bounce up from support. If
you believe that a stock is trading at an excellent level right
at the open, then you should stick to your strategy and execute
Monday's Split Announcements
No splits announced Monday.
Citigroup Posts Strong 1Q Results
By Matt Paolucci
Citigroup Inc. (C), the world's No. 1 financial services firm,
reported a 51 percent rise in first-quarter profits to a record,
propelled by big gains in its securities business and investment
income, coupled with steady growth in its consumer banking
For the complete article go to:
(By payable date)
Koninklijke Philips Electronics (PHG) splits 4:1
Metromedia Fiber Network (MFNX) splits 2:1
The PLAY LEGEND:
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.
SDLI - SDL Incorporated $157.38 (+14.38)
Sunday's Write Up:
Capturing a unique corner of the fiber optics market, SDLI has
incorporated DWDM technology to improve the speed and efficiency
of its fiber optic products. DWDM, which stands for Dense
Wavelength Division Multiplexing, allows separate lightwaves to
be matched with individual fiber strands for greater amounts of
data transfer. This area of fiber optics, which is estimated to
grow by 100% over the next five years, is being spurred by
Internet growth. As for this week's stock performance, SDLI
shares showed some strength on Friday, despite the continued
descent of many technology stocks. Rising off a strong bounce
from its daily lows, the run-up was confirmed by good intra-day
volume (1.0m shares), and should present a support level along
the $120 mark. Our stop is at $118, since the volatility on this
thing is huge. Secondary support will likely be provided along
the century mark, given a resumption of selling pressure. As for
resistance, the buck fifty mark, bolstered by the 5-dma ($150.18)
should offer some initial opposition. Entries can be initiated
by price reversals off support or advances through resistance,
when good volume and market strength are confirmed. Continue to
plan your exits in front of the earnings announcement of 4/19
(After the market). (Remember to confirm strength in the broader
market before initiating new plays. In this environment, any
short-term long play should be considered high-risk.)
The record gain posted on the Nasdaq Composite may have come just
in time to accelerate SDLI's earnings run. This is a short-term
play, only two days remain until our planned exit. Earnings are
due after the market Wednesday, so we will be out before
Wednesday's close. Until that time, the stock looks poised to
rally with the broad market as traders anticipate good earnings
numbers (and the remote possibility of a split announcement).
Even during the Friday selloff, SDLI attempted to rally. With
Monday's close, the stock had moved above the $150 resistance
level on high volume, indicating that buying conviction is solid.
Enter this play only on market strength. Keep in mind that one
positive day for the Nasdaq does not make a trend, but the
trading volume is certainly encouraging. Support is at $150,
bolstered at $147.25, which is the 10-dma. Initial resistance
is Monday's high of $158.50, then $160. A consolidation area
at about the $163 level would next offer some resistance.
Picked on April 13th @ $152.25
Change since picked +5.13
Chart = http://www.splittrader.com/charts/charts.asp?symbol=SDLI
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service only. The information provided herein is not to be
construed as an offer to buy or sell securities of any kind.
The newsletter picks are not to be considered a recommendation
of any stock but an information resource to aid the investor
in making an informed decision regarding how to trade stock
splits. It is possible at this or some subsequent date, the
editors and staff of SplitTrader.com may own, buy or sell
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