Email Version, Section 1, Monday, 07/10/2000
The SplitTrader.com Newsletter Monday 7/10/2000 1 of 1
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In This Newsletter:
Market Commentary – Are You Ready For Some Earnings?
Definition of the Day - Whole Sale Inventories
Monday’s Split Announcements – CTAC
Ask the Trader - Summertime and the Livin’ is Easy…
Tuesday’s Play-of-the-Day – SANM
Are You Ready For Some Earnings?
It appears that market participants have positioned themselves
exactly where they want to be for the earnings period, which
begins in force this week. That observation would help to
explain Monday's lackluster action. Although the market is at
the higher end of its trading range, look for some more
sideways movement with an emphasis on individual issues and
some sector rotation depending on the quality of the multiple
This is a good a time as any to remind you that disciplined
traders do not carry positions through earnings announcements.
The thinking behind this rule is that it’s just not worth
holding stocks through their earnings releases on a risk/reward
basis. Blowout earnings tend to result in only modest gains.
In market news, despite the blockbuster merger between JDS
Uniphase (JDSU) and SDL (SDLI) (more about that later) the
NASDAQ Composite Index (COMPX) failed to make any headway. The
COMPX closed down 42.49 to 3980.71. There is some solid
resistance at 4100 and traders did not even make an attempt to
assault this level. Although the selling was not particularly
severe, you should be wary of the possibility that a double top
may be forming and we may just be wandering back down into the
The NASDAQ 100 Index (NDX) was relatively weaker, dropping 68
points to close at 3773 as the major technology stocks were
surprisingly weaker than the overall market. In all
likelihood, the large caps where simply consolidating their
decent moves at the end of last week. Cisco Systems (CSCO)
dropped $2.25, Microsoft (MSFT) $2.56, Dell (DELL) lost $0.94,
Intel (INTC) gave up $1.38 and Yahoo (YHOO) sank $6.50.
Meanwhile, the Dow Jones Industrial Average (INDU) managed a
gain of 11.31 to close at 10,647.29. Advancers outpaced
decliners by a 5 to 3 margin and volume was very light with
only 851 million shares traded.
One of the INDU highlights was Alcoa (AA), which fired the
first earnings shot by reporting a solid quarter of $0.47 per
share, two cents ahead of estimates. Alcoa gained $2.06 to
The trading was understandably tame in the most watched
indices. The PHLX Semiconductor Index (SOX) dropped 7.6 to
1152.8. The PHLX Banking Index (BKX) also lost a little
ground, falling 2.88 to 793.68. The AMEX Pharmaceutical Index
(DRG) gained 6.2 to 424.14, falling just short of an all time
high. A breakout could see momentum players jumping all over
these sectors, so keep an eye on them for trading
Summer heat led to some pretty sluggish trading in the Chicago
bond pits. Although the most recent employment numbers were
benign, bonds gave back some value today. The 10-year Treasury
note fell 7/32 and is now yielding 6.04% and the 30-year bond
lost 9/32 to yield 5.88%.
If you get a bunch of executives and investment bankers
together over a weekend brunch they tend to come up with a
deal. Maybe they all need a scrambled egg protein infusion to
garner the strength to get the deal done. This past weekend
SDL, Inc. and JDS Uniphase came together to announce a
blockbuster technology deal that seeks to consolidate the fiber
JDS Uniphase will buy SDL for $41 billion in stock. It will be
the largest technology takeover in history. Both companies are
leaders in providing the equipment necessary to squeeze as much
information as possible over fiber optic lines. The deal calls
for SDLI shareholders to receive 3.8 JDSU shares for each of
their SDLI shares.
Investors seem to be a bit concerned about the price JDSU is
paying their prize and sold off its shares, which is certainly
not an unusual occurrence. JDSU closed down $15.06 to 101.13.
Meanwhile, SDLI tacked on $25.38 to $320.69. The companies
claim that the deal should have only a small impact on JDSU's
earnings in the short term and the deal should be accretive to
JDSU's earnings by the end of the year.
The largest semiconductor equipment company, Applied Materials
(AMAT) announced the release of 21 new systems to be used for
the production of 300-millimeter wafers. The newest technology
will allow chip manufacturers to place 2.5 times more chips on
each wafer, thereby reducing production costs. Still, AMAT
dropped $0.94 to $88.63.
Here are some of the key earnings announcements expected for
the rest of this week. Please remember that this is an
incomplete list and please call the investor relations
departments of the companies you are interested in to confirm
when they are releasing their numbers.
Tuesday: MGM Grand (MGG), Schlumberger (SLB), International
Paper (IP), Best Foods (BFO), Biogen (BGEN), Harley-Davidson
(HDI) and Yahoo! (YHOO).
Wednesday: Abbott Labs (ABT), Capital One (COF), Time Warner
(TWX), MGIC (MTG), Applied Micro (AMCC), Ariba (ARBA), Burr-
Brown (BBRC), Electronics for Imaging (EFII), First Data (FDC),
Motorola (MOT) and Rational Software (RATL).
Thursday: Black Box (BBOX), Fannie Mae (FNM), General Electric
(GE), J.P. Morgan (JPM), Owens Corning (OWC), Altera (ALTR),
Gateway (GTW), Iomega (IOM), Juniper Networks (JNPR), Dallas
Semiconductor (DS), Mercury Interactive (MERQ), Microchip
Technologies (MCHP), PMC-Sierra (PMCS), Powerwave Technology
(PWAV), Redback Networks (RBAK), Seagate Technology (SEG),
Sonus Networks (SONS) and Vitesse Semiconductor (VTSS).
Friday: Global Marine (GLM) and Rockwell International (ROK).
If that is not enough action for you we also have the always
market influential Producer Price Index (PPI) release on
So now what?
The key to buying the overall market this week will be waiting
for the NASDAQ to rally past 4100. If the NASDAQ can close
above that number, we may experience a nice rally to at least
4300. If resistance holds, then the NASDAQ could drift a bit
lower. Unless earnings are terrible, I would not expect the
NASDAQ to drop much below 3800, which should be pretty solid
support at the bottom of the base.
Meanwhile, the INDU is gathering some technical strength. The
MACD just crossed over to the positive side and the index looks
like it is developing a cupping pattern, which may eventually
break the downward channel. A move above 10,800 could be very
positive and may result in a rally to 11,000 and beyond. If we
get a surprise sell off, look for support at 10,300, which
would probably be a good buying opportunity.
Just to re-iterate, look for a sideways market with a slight
bullish bias. The bulk of the action will probably be limited
to just a few individual stocks. Remember a good way to trade
earnings releases is to buy stocks that are in the same
industry group as stocks that have announced positive
surprises. The first couple of releases within a group tend to
dictate a trading trend for the other stocks in the group that
have not yet released their numbers. Speculators love to chase
stocks that they expect will beat the Street. Just remember to
get out of the way before the earnings are actually announced.
Good Luck! And may all of your trades be winning ones.
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Definition of the Day
A report issued by the Census Bureau of the Department of Commerce
detailing sales and inventory statistics from the second stage of
the manufacturing process.
For the complete definition, please go to:
Monday’s Split Announcements
Monday, July 10, 2000 Before the Bell
A Clear Focus for CTAC with Release of First Stock Split
Before market open today, 1-800 CONTACTS (Nasdaq: CTAC)
announced that the Company's Board of Directors approved a two-
for-one stock split to be issued in the form of a 100% stock
dividend. Shareholders of record on July 24, 2000 will receive
additional shares on August 1, 2000. Currently there are about 6
million shares outstanding with 20 million shares authorized; more
than enough to execute CTAC's first stock split since the Company
began trading publicly in early 1998.
For the complete announcement, please go to:
Ask the Trader
Summertime and the Livin’ is Easy…
Predicting the next market move is not. Light volume and
sideways movement can make this one of the hardest times to
trade the market. Today’s winner can easily turn into
tomorrow’s loser, so I use trailing stops to keep profits from
turning into losses.
To profitably employ a trailing stop strategy, you need to
move your stop up as the price advances. You can do this
during the market or after the close, depending upon the
amount of time you want to spend trading.
For the complete article go to:
Tuesday’s Expirations by Payable Date
Brauns Fashions (BFCI) splits 3:2
TriQuint Semiconductor (TQNT) splits 2:1
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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.
Play of the Day (For Tuesday)
Monday, July 10, 2000
SANM - Sanmina Corporation $91.94 (+0.94)
Sanmina Corporation (SANM) is a company to get charged up
about. As a global pioneer in the field of electronics, SANM
is a provider of customized integrated electronic
manufacturing services including manufacturing management and
electronic assembly to original equipment makers. Primarily
they manufacture printed circuit board assemblies using
surface mount and pin-through hole interconnection technology.
On Friday, the stock hit a new high of $91.50 on volume of 3.6
million shares which was an increase of 35% from its average.
Earnings are right around the corner on July 17th with
expectation for a profit of 34 cents versus last year's profit
of 24 cents. Recent acquisitions in the last 6 months have
brought over $1.5 billion to annualized sales and brings
fiscal year 2000 sales growth to over 180 percent. After the
most recent acquisition of privately held Interworks, Merrill
Lynch raised their price target on SANM to $110 from $95. To
date the company has had three stock splits, the most recent
in March of this year. We see SANM in range for a split at
$100. However, with only 200 million shares authorized they
could only effect a 3:2 without a vote to increase for more
shares. Technically, the stock has been very bullish since it
came off of its lows in May. Light support now exists at $88
followed by the 5-dma back at $85.30. Resistance will be
Friday's new high at $91.50 until it is defeated and then the
psychological century mark. Look for new highs to come with
sustained good volume over 2.7 million shares. A bounce off
support or a blast through resistance coupled with good
momentum in the COMPX and the IXTC sector would be good entry
points. We will have a stop in place just below the 5-dma at
$84.88. If the stock should trade over $101, we'll move the
stop to 94.
Sanmina closed at a new 52-week high today of $91.94, which
isn't so bad considering most tech issues went nowhere today.
What's more, the company's shares had traded as high $94.00
after gapping up nearly $2.50 at the open. Support now
appears to be established at the 10-dma of $86.49 (though we
continue to maintain our stop at $84.88). The stock has run
into some resistance at $94.00; try as it might, it just
couldn't break that barrier today. However, if the stock can
maintain above-average volume of 3 million + shares, it should
be able to break this resistance and possibly move freely to
$100, which, by the way, was roughly the price where the
company announced its last 2-for-1 split back on January 18.
Picked on July 9th @ $91.00
Change since picked +0.94
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This newsletter is a publication dedicated to the education
of online stock traders. The newsletter is an information
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
securities presented. All investors should consult a qualified
professional before trading in any security. The information
provided has been obtained from sources deemed reliable but is
not guaranteed as to accuracy or completeness. SplitTrader.com
staff makes every effort to provide timely information to its
subscribers but cannot guarantee specific delivery times due
to factors beyond our control.