Email Version, Section 1, Sunday 03/04/2001
The SplitTrader.com Newsletter Sunday 03/04/2001 1 of 2
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In This Newsletter:
Market Commentary - Capitulation
Definition of the Day
Friday's Split Announcements - None
Event Calendar - Next Week's Economic reports
Upcoming Splits for next two weeks
Successful Announcements - Last Week
New Candidates List
Expected/Likely Announcements for the Coming Week
Market Stats For the Week
Index Close Change Support Resistance
DJIA (INDU) 10,466.31 + 26.44 10,350 11,000
Nasdaq (COMPX) 2,117.63 -142.48 2,000 2,700
S&P 500 (SPX) 1,234.18 - 11.29 1,200 1,400
Russell 2000 (RUT) 476.88 - 0.56 460 508
PHLX Semi (SOX) 582.20 - 26.14 530 800
You knew it was only a matter of time before the last of the big-
cap tech stocks would raise the white flag. Over the past month,
Cisco Systems (Nasdaq:CSCO), Microsoft (Nasdaq:MSFT), Intel
(Nasdaq:INTC), Dell Computer (Nasdaq:DELL) and Sun Microsystems
(Nasdaq:SUNW) have all warned of lower-than-expected earnings over
the coming quarter. Conspicuously absent from this list, though,
has been Oracle Corp. (Nasdaq:ORCL).
Well, as we all learned on Thursday, Oracle's distinction of
continuously meeting quarterly earnings expectations is no more.
The king of all business application software providers now says
it expects to report quarterly earnings of $0.10 a share, $0.02
shy of the forecast of analysts surveyed by First Call. And for
2001, Oracle reduced its earnings-per-share forecast to $0.47 from
$0.52 and reduced its revenue estimate to $11.3 billion from $11.9
Trader reaction to the news was thoroughly predictable: Oracle's
stock was routed mercilessly (which is proof once again that there
is no such thing as a bullet-proof business model). On Friday,
the company's stock plunged $4.50, or 21 percent, to $16.88 and
was the most-active stock with more than 223 million shares traded
-- the third-busiest day for any U.S. stock.
Of course, Oracle doesn't operate in a vacuum; there is such a
thing as guilt by association. In other words, many of those
companies operating within Oracle's circle of competency were
taken to the cleaners, too. Siebel Systems (Nasdq:SEBL) tanked
$8.52 to $36.11, Veritas Software (Nasdaq:VRTS) tumbled $7.06 to
$63-5/8, BEA Systems (Nasdaq:BEAS) dropped $6.23 to $32.69,
PeopleSoft (Nasdaq:PSFT) skidded $7 to $27.06 and Mercury
Interactive (Nasdaq:MERQ) plunged $10.50 to $48.50.
As the more astute reader will quickly note, all of these stocks
are of the four-letter variety, meaning that they trade in the
Nasdaq market, so it should come as no surprise that the Nasdaq
Composite Index (COMPX) had yet another sub-par outing on Friday.
For the day, the COMPX closed down 65.74 points, or 3.01 percent,
to 2,117.63, posting its lowest finish since December 1998.
What's more, it was the fifth losing week in a row for the COMPX,
meaning the tech-heavy index is now down 14.3 percent for the
Last week, I said that the COMPX was a mess technically. Since it
finished below last week's levels, its situation hasn't improved.
The index is down nearly 60 percent from its March 2000 high of
5,132, which means it's firmly ensconced in a bear market. What's
more, should the downward trend began back in October 2000
continue, the COMPX will likely challenge its December 1998 lows
Chart of the NASDAQ Composite:
As for the Old Economy, the picture appears rosier. On Friday,
the Dow Jones industrial Average (INDU) gained 16.17 points, or
0.15 percent, to 10,466.31. However, it wasn't a smooth ride to
higher ground. The blue-chip barometer traded as low as 10,302.06
and as high as 10,579.27 during the day. For the week, the INDU
rose 0.2 percent.
Technically, the INDU is in better shape than the COMPX. It's
down only 11 percent from its January 2000 high of 11,720. What's
more, it's down only 8 percent from its 52-week high of 11,425.
However, the INDU is still caught in that all-too-familiar trading
range of 10,300 to 11,000. And that range could be tightening
thanks to a bearish diamond formation that can be traced back to
Chart of the Dow Jones Industrial Average:
Looking at the broader market, the S&P 500 Index (SPX) slipped
7.05 points, or 0.57 percent, to 1,234.18 on Friday, posting its
fifth-straight down week. However, the sell-off was confined
mostly to the index's large-cap tech issues. In fact, of the 87
industry groups in the SPX, only 25 declined. Nevertheless, based
on Friday's closing print, the SPX is down more than 20 percent
from its 52-week high of 1,553.11, meaning we are now officially
in a bear-market.
In stock news on Friday, sector rotation continues to be the norm,
as traders appeared to be exchanging their networking stocks for
tobacco stocks en mass. Cisco Systems dropped 9.4 percent to hit
a new 52-week low, JDS Uniphase (Nasdaq:JDSU) sank 9.8 percent and
Sun Microsystems closed off percent.
On the flip side, the AMEX Tobacco Index (TOB) finished the day up
2.6 percent thanks to R.J. Reynolds (NYSE:RJR), US Tobacco
(NYSE:UST), British American Tobacco (AMEX:BTI), Philip Morris and
Splittrader current play member Loews (NYSE:LTR), all of which hit
52-week highs on Friday.
Speaking of current plays, our Current Play list continues to hold
its own despite the selling pressures in the COMPX and SPX
markets. In fact, many of our plays did more than hold their own
this week. In addition to Loews, Granite Construction (NYSE:GVA),
Performance Food Group (Nasdaq:PFGC), Lockheed Martin (NYSE:LMT),
and Texaco (NYSE:TX) all posted solid gains.
Much of Friday's selling could be attributed to Oracle's mea
culpa, but not all of it. Sentiment was soured by a fresh slate
of economic data pointing to a slowdown in consumer spending. U.S.
consumer sentiment, as measured by the University of Michigan's
twice-monthly barometer, hit its lowest level in nearly five years
in February. As I mention in last Sunday's commentary, consumer
sentiment and the COMPX appear to be highly correlated.
In other economic news, Fed Chairman Alan Greenspan spoke before
the House Budget Committee on fiscal policy Friday morning. The
Fed chief made no mention of monetary policy but did reaffirm his
support for George W. Bush's tax rate cut proposal.
Looking ahead, this week's major economic data kicks off on Monday
with the National Association of Purchasing Management's (NAPM)
non-manufacturing index. The index is a measure of business
activity outside the manufacturing sector, and is expected to have
risen to 52 during February, up from 50.1 in January. An index
reading of 50 or higher indicates expanding business conditions
within the sector.
Unfortunately, there isn't much to hold the market's attention
until Friday when we get the unemployment rate for February, which
is forecasted to have held steady at 4.2 percent, unchanged from
the prior month. In addition, the economy is expected to have
added 88,000 non-farm jobs in February, off from the 268,000 non-
farm payrolls added in January. Average weekly hours are
forecasted to post little changed at 34.2 in February, from 34.3
in the prior month.
Don't expect these data sets to encourage the Fed to cut interest
rates between now and March 20th. Most market players seem
resigned to waiting another two weeks for a 50-basis point cut.
To that end, the futures market predicts a 4.91 percent fed funds
rate in April, which implies that traders are anticipating at
least a 50-basis point cut to 5.0 percent by the end of March.
So, if the economic news and the Fed aren't going to move the
market this week, will this week's batch of earning reports? It's
unlikely. Set to report this week is Target (NYSE:TGT), Krispy
Kreme Doughnuts (Nasdaq:KREM) and National Semiconductor
(NYSE:NSM) -- lightweight fare to say the least.
Despite the dearth of economic and earning reports, I think the
market could move higher, anyway. As I stated earlier,
technically, the markets aren't looking great, but they are
holding their own. On Friday, the INDU once again held support at
support at 10,300, while the COMPX held Thursday's lows and
continues to signal being oversold according to its Relative
Strength Index (RSI) reading of 30.
I also think current sentiment could move this market. On Friday,
the CBOE put/call ratio closed the week at 0.80, which is an
unusually bearish reading (readings of 0.60 are considered bearish
and of 0.30 bullish). More traders are obviously betting on lower
stock prices based on the increased activity in puts compared to
call. In other words, a lot of folks are worried, which means
more folks are likely to begin positioning themselves on the
opposite side of these nervous traders.
I also like the chatter I'm hearing on the Street. Remember last
year when the talk was of COMPX 6,000? Now, the talk is of COMPX
1,000 (which I seriously doubt we will even get close to). This
has me thinking that nearly everyone who is going to sell tech has
already sold, which means there should be little additional
selling pressure on techs, particularly in light of Oracle's
capitulation on Friday.
And let's be honest, how much further can the tobacco stocks run?
I think based on current risk/reward analysis, the big-cap techs
offer the potential for much better returns than their more
mundane counterparts over the coming 12 months. Most of the big-
time tech companies have seen their shares halved over the past
year, while nearly all the tobacco stocks have doubled.
A year ago, if you had asked me which stock had the potential for
greater returns, Cisco or Philip Morris, I would have said Philip
Morris. But today, with Philip Morris near $50 and Cisco near
$22, I have to go with Cisco. In fact, I think today's current
low prices in many of the tech issue could provide investors with
a buying opportunity that comes around only once every three to
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Definition of the Day
An option strategy where both a call and a put are purchased on
the same underlying security with the same dates of expiration
but and strike prices that are equally out of the money.
For the complete definition, please go to:
Friday's Split Announcements
Monday's Expirations by Payable Date
Frontier Airlines, Inc. (FRNT) splits 3:2
For the week of March 5, 2001
NAPM Services Feb Forecast: 52.00% Previous: 50.10%
Online shopping Index Feb Forecast: NA Previous: 162.7
Productivity-Rev. Q4 Forecast: 2.00% Previous: 2.40%
Factory Orders Jan Forecast: -2.20% Previous: 1.10%
Consumer Credit Jan Forecast: $5.3B Previous: $3.0B
Beige Book NA Forecast: NA Previous: NA
Oil and Gas inventory 2-Mar Forecast: NA Previous: 280.0MB
Semiconductor Billing Jan Forecast: NA Previous: -2.1%
Initial Claims 3-Mar Forecast: NA Previous: 372K
Chain Store sales Feb Forecast: NA Previous: 4.8%
Nonfarm Payrolls Feb Forecast: 88K Previous: 268K
Unemployment Rate Feb Forecast: 4.20% Previous: 4.20%
Hourly Earnings Feb Forecast: 0.30% Previous: 0.00%
Average Workweek Feb Forecast: 34.2 Previous: 34.3
Wholesale Inventories Jan Forecast: NA Previous: 0.00%
ECRI Future Inflation Feb Forecast: NA Previous: -7.8%
ECRI Wkly Leading Indx 2-Mar Forecast: NA Previous: -3.3%
Week of March 12th
Mar 13 Retail Sales
Mar 13 Retail Sales ex-auto
Mar 14 Business Inventories
Mar 15 Initial Claims
Mar 15 Export Prices ex-ag.
Mar 15 Import Prices ex-oil
Mar 15 Current Account
Mar 15 Philadelphia Fed
Mar 16 PPI
Mar 16 Core PPI
Mar 16 Housing Starts
Mar 16 Building Permits
Mar 16 Industrial Production
Mar 16 Capacity Utilization
Mar 16 Mich Sentiment-Prel.
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Symbol Company Name Splits Payable Executable
FRNT - Frontier Airlines 3:2 03/05/2001 03/06/2001
CPS - ChoicePoint, Inc. 3:2 03/07/2001 03/08/2001
BOBJ - Business Objects 3:2 03/09/2001 03/12/2001
BMO - Bank of Montreal 2:1 03/14/2001 03/15/2001
AFL - AFLAC, Inc. 2:1 03/16/2001 03/19/2001
EASI - Engineered Support Systems 5:4 03/16/2001 03/19/2001
KREM - Krispy Kreme Doughnuts 2:1 03/19/2001 03/20/2001
LTR - Loews Corp. 2:1 03/20/2001 03/21/2001
GENI - GenesisIntermedia 3:1 03/21/2001 03/22/2001
FRC - First Republic Bank 3:2 03/22/2001 03/23/2001
RSAS - RSA Security Inc. 3:2 03/23/2001 03/26/2001
INOD - Innodata Corp. 2:1 03/23/2001 03/26/2001
TWRI - Trendwest Resorts 3:2 03/27/2001 03/28/2001
NYCB - New York Community Bancorp 3:2 03/29/2001 03/30/2001
FSCR - Federal Screw Works 5:4 04/02/2001 04/03/2001
Successful Announcement Predictions For The Past Week
Symbol Company Date Announced
CAH Cardinal Heath, Inc. 02/27
BAX Baxter International, Inc. 02/28
NEW SPLIT CANDIDATES LIST
New Split Candidates:
ICOS - ICOS Corporation $55.00 (+4.63)
This biotech superstar has four products in the pipeline and has
held up remarkably well in this turbulent market. The company
has never split its shares but by virtue of the fact that it is
near old highs and is now trading over $50/share, we feel there
is a chance it could announce a 3:2 split. A like time for the
company to do this would be its 4/26 earnings release date.
ITG - Investment Technology Group $56.35 (+9.10)
ITG provides trading services to institutional clients. The stock
is now trading at new all-time highs and has approached historic
split-levels for the financial sector. Although the company has
never split its shares before, if it keeps on its current path, a
2:1 split becomes increasingly likely. We will keep an eye on
its upcoming earnings announcement scheduled for 4/19 as a
probable time for an announcement.
STU - Student Loan Corporation $64.70 (+3.80)
STU is another stock that is making new highs on almost a daily
basis. It also has never split its shares, but has plenty of
authorized shares to go through with a 2:1. We will keep a watch
on any BoD meetings and its next earnings report scheduled for
4/20 as possible announcement triggers.
TTC - Toro Company $41.95 (+0.50)
The yard products and sprinkler system firm has obviously taken
advantage of the recent building boom to accelerate its growth
strategy. The stock has responded by appreciating 60% in the
past 15 months. TTC last split 3:2 in 1987 at around the $30
level. At around $40, the stock is back into split territory and
the company has enough authorized shares to go through with a 3:2
Expected/Likely Announcements for the Coming Week
Symbol Company To Announce
BJ BJ's Wholesale Club, Inc. 03/06
CHCS Chico's FAS, Inc. 03/07
GENZ Genzyme General 03/08
BJ - BJ's Wholesale Club, Inc. $44.90 (+0.20)
BJ's last announced a 2:1 split on 2/4/99 at $43.31. BJ is now
well into split territory and we see a possible 2:1 announcement
coming with the company's earnings release on 3/6. Authorized
shares should not be a problem as the company has 180 million
authorized and only 74 million outstanding.
CHCS - Chico's FAS, Inc. $35.75 (-3.50)
This clothing retailer last announced a 2:1 split on 12/14/99 at
$42.13. The stock is now knocking on the door of this split
level and reports earnings on 3/7. We are anticipating another
2:1 split announcement to accompany earnings.
GENZ - Genzyme General $88.13 (+5.32)
GENZ has not split its stock since 1996. The split price back
then was $47.25, obviously much lower than current prices.
Given that GENZ is just $14 away from its all-time high, we
believe a 2:1 split may be in the cards for Genzyme. Its
earnings release date of 3/8 would be a perfect time to ask for
and reward investors with additional shares.
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