Email Version, Section 1, Sunday 03/11/2001
The SplitTrader.com Newsletter Sunday 03/11/2001 1 of 2
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In This Newsletter:
Market Commentary - Public Flagellation
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) 10,644.62 +178.31 10,300 11,000
Nasdaq (COMPX) 2,052.78 - 64.74 2,000 2,700
S&P 500 (SPX) 1,233.42 - 0.76 1,200 1,400
Russell 2000 (RUT) 473.65 - 3.23 460 508
PHLX Semi (SOX) 593.44 + 11.24 530 800
"It's dij` vu all over again," so supposedly said the king of the
malapropism Yogi Berra.
Well, I suppose it is if you are referring to the punch-drunk tech
sector. Everyday it seems a high-profile Internet-dependent
company staggers to the fore with thumb firmly planted in mouth
and blanket securely gripped in arm to tell the world just how
miserable business really is.
What's more, it seems to be the same companies. Yes, Yahoo's
(Nasdaq:YHOO) mea culpa that it would miss earnings forecast was
original (though long rumored), but what about Intel's
(Nasdaq:INTC) latest bomb on Thursday? Is it my imagination, or
does this company insist on embarrassing itself publicly at least
once a month?
If you missed the news, Intel reported late Thursday that its
first-quarter sales would fall as much as 25 percent from the
previous quarter and that it would cut 5,000 jobs, or about 5.7
percent of its workforce, thanks to a slowdown in the PC and
network server markets.
If that weren't depressing enough, the company said it expects its
revenue for the first quarter to be down about 25 percent from
fourth-quarter revenue of $8.7 billion, far lower than its
previous estimate that first quarter revenue would be down around
Intel's latest confession may have been good for the soul, but it
sure was rotten for the stock price. On Friday, the stock lost
$3.81 a share, or 11.46 percent, to close at $29.44.
Of course, we live in a world where public self-flagellation is
expected, and even lauded, so it was inevitable that another high-
tech enterprise would try and out flagellate Intel on Friday, and,
as we've come to learn, that company was Cisco Systems
(Nasdaq:CSCO). After the market close, the Internet routing and
switching king said that 2,500 to 3,000 temporary and contract
workers would be deleted immediately from the payroll while 3,000
to 5,000 regular employees would be deleted through "voluntary
attrition, involuntary attrition, and the consolidation of some
Involuntary attrition? Sounds like a euphemism for fired that
someone on Bill Clinton's legal defense team would coin.
As a result of these workforce reductions (or attritions), Cisco
is anticipating a one-time charge of $300 million to $400 million
by the end of the fourth quarter of fiscal 2001.
On Friday, Cisco's market cap took a one-time charge (at least for
Friday anyway) of $15 billion, or $2.19 a share. Cisco closed the
day at $20.63 after earlier sliding to a two-year low of $20.31,
which means Cisco's stock is now trading at levels not seen since
Needless to say, with the Triplet's finishing Friday thoroughly in
the red (I suppose I should mention that Microsoft finished off
$2.56 to $56.69), no one should be surprised that the Nasdaq
Composite Index (COMPX) finished Friday thoroughly in the red,
too. For the day, the COMPX lost 115.95 points, or 5.35 percent,
to close at 2,052.78, its lowest close since December 1998. For
the week, the COMPX was down 65 points, or 3.1 percent, marking
its sixth straight weekly decline. For the year, the index is off
16.9 percent. And from its all-time high of 5,132, it's off 60
percent (get the picture?).
As you can readily see on the 120-minute chart, the COMPX has been
making for the nether regions like a runaway roller coaster since
early February. Sure, there have been a couple of one-day
outliers that have broken through the downward trend, but they
would promptly returned to form the following trading session.
Chart of NASDAQ Composite, 120 minute:
For long-term investors in big-cap COMPX issues, though, the trend
looks more promising. The index may have caught support on the
long-term trend began in 1995. (Obviously, if the trend holds, it
will help short-term long traders, too.)
Chart of NASDAQ Composite, Monthly:
If misery loves company, then fans of the New Economy found
companionship with fans of the Old. The Dow Jones Industrial
Average (INDU) tumbled 213.63 points, or 1.97 percent, to
10,644.62. Punishing the INDU (in addition to Intel and
Microsoft) were International Business Machines (NYSE:IBM),
Hewlett-Packard (NYSE: HWP) and General Electric (NYSE:GE).
Despite Friday's routing, the INDU still finished the week up 178
points, or 1.7 percent. Oddly enough, the INDU was lifted higher
by its manufacturing components: the same manufacturing components
that are supposedly experiencing a recession, at least according
to the latest slate of economic data. General Motors (NYSE:GM),
Caterpillar (NSYE:CAT), Boeing (NYSE:BA), Minnesota Mining &
Manufacturing (NYSE:MMM) and International Paper (NYSE:IP) all
finished the week with strong gains.
Looking at the bigger picture, the INDU is off a modest 1.3 for
the year and is off 6.8 percent from its 52-week high of 11,425.
Though not mired in a bear market like the COMPX, the INDU is
mired in its 10,300 to 11,000 trading range began last October.
As for the broader market barometer, and official arbiter of bear
and bull markets, the S&P 500 Index (SPX) finished Friday off
31.32 points, or 2.49 percent, to 1,233.42. The SPX is now
trading at a 19 percent discount to its 52-week closing high of
1,527, which means officially the market is not in a bear market.
However, looking at the chart, I think we could easily find
ourselves in one before the week is through.
Chart of S&P 500, Daily:
As stock news, traders could find a few safe havens among the
minefields on Friday. Tobacco continued its yearlong rally with
Philip Morris (NYSE:MO), R.J. Reynolds (NYSE:RJR) and new
Splittrader Current Play list member Universal Corp. (NYSE:UVV)
all making new 52-week highs.
Speaking of our Current Play list (why waste a good segue),
additional safe havens could be found in Texaco (NYSE:TX), Loews
Corp. (NYSE:LTR), Lockheed Martin (NYSE:LMT), Callaway Golf
(NYSE:ELY) and International Game Technology (NYSE:IGT). As I
stated in last week's commentary, our plays have held up well
during the month-long sell-off on the COMPX and SPX.
Finally, I would be remiss if I didn't mention the Oracle of
Omaha, Warren Buffet. On Friday, Buffett's investment vehicle,
Berkshire Hathaway (NYSE:BRKa), reported its 2000 net income rose
to $3.33 billion, or $2,185 a share, from $1.56 billion, or $1,025
a share in 1999, a gain of 113 percent. The results were helped
by a 189 percent increase in realized investment gains to $3.96
billion from $1.37 billion a year ago.
In 1999, Buffett eschewed tech stocks because he said that he
"didn't understand their businesses." It seams to me that Buffett
understands their businesses all too well.
In economic news, inter-FOMC rate cut hopes were all but dashed
with Friday's jobs report. Employment gains were stronger than
expected in February with 135,000 net new jobs added. What's
more, the average hourly earnings -- watched as a measure of wage
inflation -- jumped 0.5 percent, above analysts' forecasts for a
0.3 percent gain, adding to concerns over wage-led inflation.
Meanwhile, the jobless rate remained steady at 4.2 percent, which
was the consensus estimate.
The unexpectedly bullish jobs report (for workers) has traders
concerned that the Fed may cut the fed funds rate by only 25-basis
points at the March 20 FOMC meeting, instead of the hoped-for 50-
Still, interest rate concerns could be assuaged with this week's
schedule of economic releases. On Tuesday, we get retail sales
for February, which are forecasted to have risen 0.4 percent
during the month, off from a 0.7 percent increase in the previous
month. Less autos, core retails sales are expected to have
increased 0.2 percent in February, off sharply from a 0.8 percent
gain in January.
The on Friday, we get the Producer Price Index (PPI) and core PPI
(PPI sans food and energy). PPI is forecasted to have increased
only 0.1 percent in February, off from a 1.1 percent gain in
January, while core PPI is also expected to have risen 0.1 percent
during February, off from a 0.7 percent increase in the first
month of the year. Additionally, industrial production is
predicted to show a decline of 0.2 percent for February, less than
the prior month's decline of 0.3 percent, and capacity utilization
is expected to show plant usage at 79.9 percent, off from 80.2
percent in January.
If this week's economic news doesn't get the markets moving, it's
possible this week's earnings releases will. Adobe Systems
(Nasdaq:ADBE), K Mart (NYSE:KM), Comverse Technology
(Nasdaq:CMVT), Kroger (NYSE:KR), Albertson's (NYSE:ABS) and Heinz
(NYSE:HNZ), which warned last week, are all scheduled to report.
However, the lion's share of earnings attention will be bestowed
upon Oracle Corp. (Nasdaq:ORCL), which made news last week after
warning the market that it would miss sales and earnings estimates
for the first quarter. This news came just two weeks after Oracle
executives said that the company's business remained strong. Look
for Oracle to report $0.10 a share after the closing bell on
As for trading this week, I think the overriding factor
influencing market direction will be concerns over interest rate
cuts. As of Friday, the futures market predicted a 4.96 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, meaning there is high likelihood that that we will
get a 50-basis point cut at the March 20 FOMC meeting.
Still, we need to proceed with caution. If it becomes obvious
that 50-basis points in the bag, I think that COMPX should hold
2,000 and the INDU hold 10,300. On the other hand, should
Friday's PPI report come in stronger than expected, or should
another big-cap tech stock blindside the market with an earnings
warning, I think all heck could break loose like it did on Friday.
Regardless of what happens, we're going to be playing it safe
through next week's FOMC meeting, meaning our Current Play list
will remain weighted towards low-tech NYSE issues. Traders with
sensitive stomachs and nervous dispositions should probably follow
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Definition of the Day
Many investors equate playing the market to sporting events. For
example, if stock goes up tenfold over a period of time, that
person may say he/she hit a "home run." But some investors aren't
as interested in taking big risks looking for home runs, and are
content with trading more often, looking to accumulate wealth
through smaller gains and lots of them. These folks, whose goal
is to generate lots of small gains over time, are often said to
be "hitting singles."
For the complete definition, please go to:
Friday's Split Announcements
Monday's Expirations by Payable Date
For the week of March 12-16
Retail Sales Feb Forecast: 0.3% Previous: 0.7%
Retail Sales ex-auto Feb Forecast: 0.1% Previous: 0.8%
Business Inventories Jan Forecast: 0.0% Previous: 0.1%
Initial Claims 10-Mar Forecast: NA Previous: 370K
Export Prices ex-ag Feb Forecast: NA Previous: 0.2%
Import Prices ex-oil Feb Forecast: NA Previous: 0.3%
Current Account Q4 Forecast:-$117.0B Previous: -$113.8B
Philadelphia Fed Mar Forecast: -25.0 Previous: -30.5
PPI Feb Forecast: 0.1% Previous: 1.1%
Core PPI Feb Forecast: 0.1% Previous: 0.7%
Housing Starts Feb Forecast: 1.60M Previous: 1.651M
Building Permits Feb Forecast: N/A Previous: 1.697M
Industrial Production Feb Forecast: -0.2% Previous: -0.3%
Capacity Utilization Feb Forecast: 80.0% Previous: 80.2%
Mich Sentiment -Prel Mar Forecast: 87.0 Previous: 90.6
Week of March 19th
Mar 20 Trade Balance
Mar 20 Treasury Budget
Mar 20 FOMC Announcement
Mar 21 CPI
Mar 21 Core CPI
Mar 22 Initial Claims
Mar 22 Leading Indicators
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Symbol Company Name Splits Payable Executable
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
DYII - Dynacq International 2:1 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 03/21/2001 03/22/2001
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 03/28/2001 03/29/2001
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
RMCI - Right Management Consult. 3:2 04/06/2001 04/09/2001
JP - Jefferson Pilot 3:2 04/09/2001 04/10/2001
Successful Announcement Predictions For The Past Week
Symbol Company Date Announced
None - No Splits This Week
NEW SPLIT CANDIDATES LIST
New Split Candidates:
HRB - H&R Block, Inc. $50.98 (+0.28)
The provider of tax preparation and financial services has not
split its stock since 1991. It has historically split at the $60
level, so we are getting close to split territory at current
prices. The company has 400 million shares authorized and only
91 million outstanding, so a 2:1 split is certainly possible. It
announces earnings on 5/29, which may be a great time to reward
shareholders with another split.
KMI - Kinder Morgan, Inc. $59.12 (+3.42)
Kinder Morgan last announced a 3:2 split back in November of 1999.
At that time it was trading at $60/share. After a brief dip in
1999, KMI has taken only quick reprieves on its way to a 195%
gain since 1/1/2000. The company unofficially reports earnings
on 4/18/01. We are targeting this date as a likely time for
another 3:2 split announcement.
LSTR - Landstar System, Inc. $68.88 (+0.44)
This trucking and transportation services company shows no signs
of putting on the brakes soon. The stock is making new highs and
although it has never split its shares, the stock is now trading
at historical split-levels for the transportation sector. We
believe the next target date for a 2:1 split is the company's
earnings release date of 5/10.
Expected/Likely Announcements for the Coming Week
Symbol Company To Announce
KMG Kerr-McGee Corporation 03/13
BMET Biomet, Incorporated 03/14
KMG - Kerr-McGee Corporation $69.79 (+3.73)
Kerr-McGee last split its shares 2:1 way back in 1981 at about
$75/share. With oil and gas stocks riding high on the wave of
rising energy prices, KMG is back into split territory after all
these years. We believe there is a possibility of another 2:1
split announcement coinciding with the company's Board of
Directors meeting scheduled for 3/13.
BMET - Biomet, Incorporated $41.38 (+2.07)
This medical equipment supplier has appreciated almost 50% over
the last year and is now trading near all-time highs. BMET last
announced a 3:2 split back on 7/6/2000 at $38.00, so we are right
back into split territory. The company releases earnings on 3/14,
which we feel would be a good time to announce another 3:2 split.
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