Email Version, Section 1, Monday 03/12/01
The SplitTrader.com Newsletter Monday 03/12/2001 1 of 1
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In This Newsletter:
Market Commentary - Pouncing Bears, Hidden Bulls
Definition of the Day
Monday's Split Announcements - None
Tuesday's Play-of-the-Day - UVV
Pouncing Bears, Hidden Bulls
The general Investor's Intelligence sentiment indicators are still
bullish. But if today's action is any indication, the bulls seem to be
saying one thing, but letting their money do another.
The continued broad based declines have the appearance of a much-
anticipated major capitulation. Unfortunately, technical indicators,
such as volume and advance/decline numbers do not support the
supposition that we have seen the final capitulation.
The NYSE saw only middling volume of 1.06 billion shares. Despite a
decline in the Dow Jones Industrials of 436.37 points with a close at
10,208.25, most market pundits believe that if volume had crossed 2.3
billion shares, we probably would have seen the final capitulation.
Decliners were definitely quite strong on the NYSE, beating advancers by
a 23 to 8 margin. Again, market pundits are looking for an
advance/decline ratio approaching 1 to 9 before becoming confident that
we have seen the final capitulation.
The Nasdaq (COMPX) did achieve decent volume of 1.90 billion shares,
which accelerated into the close. It is entirely possible that the
tech-heavy index is very close to its final capitulation sell-off. To
that end, the Nasdaq closed down 129.40 points to 1923.38. Decliners
trounced advancers by a ratio of 31 to 7. This number was closer to the
desired levels that would indicate a final capitulation.
Today's declines were characterized by a lack of bidding as opposed to
intense selling, despite the acceleration of declines into the close. A
lack of bids means there are very few market participants who are
willing to step up to the plate and attempt to buy a stock. In such an
environment, even light selling can cause major point declines as weak
bids, characterized by low bid sizes (the amount of stock willing to be
bought at the bid price), keep dropping.
Today's excuses for not buying include the continued technology fallout
following last week's negative news from Intel (Nasdaq:INTC) and Cisco
Adding to the market's woes is the further collapse of the Japanese
stock market, the NIKKEI, which is trading below levels last seen
sixteen years ago. Japanese banks complete their fiscal year at the end
of this month. When the balance sheets of these major financial centers
become public, it may become evident that Japanese banks have been
decimated by declining stock prices. There could be huge negative global
economic consequences if several Japanese banks are approaching
OK, enough of the doom and gloom. Today marked the first day of triple
witching week. If past experience is any guide, we should see the lows
for the week by sometime tomorrow afternoon. We could also see a bounce
rally start sometime late tomorrow that could follow through until the
end of the week. The one technical indicator that supports this theory
is the Relative Strength Indicator (RSI), which is showing oversold for
both the Nasdaq and the S&P 500 (SPX).
Major gainers were exceedingly hard to find today. One stock that did
rally was United Dominion (NYSE:UDI), which gained $2.38 to $21.88
following the Company's agreement to be acquired by SPX Corp.
(NYSE:SPW). The deal calls for UDI shareholders to receive 0.2353
shares of SPW for each share of UDI that they own. The deal places a
decent premium of 30% on UDI based upon both stocks closing prices on
Friday. SPW fell $8.08 to $95.52 in today's trading.
There was some upside trading among top U.S. life insurance companies
after it was announced that Britain's Prudential Plc agreed to buy
American General Corp (NYSE:AGC) in a $22 billion stock deal. AGC
finished the day up $0.55 to $38.80. Lincoln National Corp (NYSE:LNC)
picked up $1.03 to $45.01.
There were not any gainers on the Nasdaq's most active list. Cisco
Systems (Nasdaq:CSCO) lost another $1.81 to $18.81. Microsoft
(Nasdaq:MSFT) dropped $4.75 to $51.94. Ciena (Nasdaq:CIEN) was crushed
$11.81 to $53.31.
The broader market indices were all substantially lower. The S&P 500
(SPX) dropped 53.25 points to 1180.15. The S&P 100 (OEX) lost 31.88 to
601.52. The Nasdaq 100 (NDX) was particularly ugly as it declined 132
points to 1681. The Russell 2000 (RUT) was unable to avoid the carnage
as it dropped 15.25 points to 458.40.
At least some of the cash vacating the stock market found its way into
Treasuries. The 10-year Treasury note gained a quarter point and now
yields 4.915%. The 30-year government bond picked up 11/32 and now
It was practically impossible to find a safe haven among the major
industry sectors. The PHLX Semiconductor Index (SOX) began the day in
promising fashion but closed down 17.05 points to 576.40. The PHLX Bank
Index (BKX) was slammed 43.84 points to 843.68. The Biotechnology Index
(BTK) was also crushed with a loss of 51.16 to 479.74. Looking for a
winner? Try the PHLX Gold and Silver Index (XAU), which picked up 0.12
points to 55.13.
March 20th never seemed so far away. The bond market has already priced
in a rate cut of 50-basis points following next week's FOMC meeting.
The way the stock market is behaving it is becoming increasingly clear
that a more substantial rate cut may be necessary to resuscitated stock
Our next clue as to whether this will happen is tomorrow when February's
Retail Sales numbers will be released. Consensus estimates are calling
for an increase of 0.3%. If these numbers come out higher than
expected, we could see an ugly opening. If we see numbers worse than
expectations we may see the start of the bounce.
The Nasdaq has clearly dropped below the critical support of 2000. The
next support level will be the topic of conversation among many
investors tonight. There is some evidence that there is support just
below 1800. This price level was a swing point during the market's
oscillations from February through November 1998. The Nasdaq bottomed
in October 1998 at 1357.09 before starting its historic rally to above
5000. It is not out of the question for this next level of support to
be eventually tested.
Like I said before, the short term appears to be setting itself up for a
bounce. This theory is mostly supported by the Relative Strength Index
(RSI), which is showing an incredibly oversold condition that has
previously resulted in bounce rallies. If we can close above 2000, then
a rally to resistance at 2075 seems possible by the end of the week.
Picking bottoms is not for the faint of heart. I also cannot stress
enough the necessity of being disciplined with your stops if you see fit
to go long this market.
The Dow Jones Industrials (INDU) faked out technical traders last week.
A close above the 50-DMA of 10,718 on Thursday should have resulted in a
test of the 11,100 resistance. Obviously this did not occur, and the
INDU plummeted once it crossed back below the 50-DMA, which closed today
The MACD also issued a false buy signal last week and today's declines
caused a sell signal according to this indicator. If 10,000 support
does not hold tomorrow, it is quite possible that we could see a test of
the support created by last October's slam-dunk to 9571.40.
But maybe I got ahead of myself because the INDU is also oversold
according to the RSI. Therefore, a short-term bounce due to triple
witching expiration trading, as well as the oversold condition indicated
by the RSI, should start tomorrow afternoon or perhaps Wednesday
morning. But then again, who really knows in this market.
Good Luck and may all of your trades be winning ones!
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Definition of the Day
A liability is an obligation to pay, or a financial obligation.
For the complete definition, please go to:
Monday's Split Announcements
Tuesday's Expirations by Payable Date
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Play of the Day (For Tuesday)
Monday, March 12, 2001
UVV - Universal Corp. $39.82 -0.17
There is strong evidence that investors and money managers alike
still hold large cash positions. After attempting to rally
"value" technology stocks, many were burned later in the week as
the NASDAQ made a new low. This set of circumstances helps to
explain why UVV continues to rally. This tobacco merchant and
distributor of lumber and building products is trading at a very
low P/E of 10.22. Investors are extremely risk adverse these days
and UVV offers a relative value. UVV actually managed to
establish a new 52-week high of $39.00 during a day that saw the
Dow Jones Industrials (INDU) drop 213.63 points. This fact may
encourage the momentum-trading crowd to jump on board. UVV may
really start to roll if it can climb above the $39.50 resistance
level established way back in June of 1998. A good time to
initiate a position might be when UVV looks like it is going to
close above this resistance and has crossed 100,000 shares in
daily volume. After a lengthy ascent, the MACD has cooled off but
remains positive. OBV is currently making new highs and could be
forecasting continued new highs for the stock. The RSI is
brushing the top end of its range. Therefore, we would be
cautious about picking up the stock if it starts slipping in the
early going on Monday, especially if UVV slips below the support
offered by the 10-DMA of $38.13.
Since reporting its quarterly earnings results a month ago,
Universal has moved ahead nearly 20 percent to Monday's close of
$38.82, as tobacco proves to be a safe haven from the free-fall
in the tech economy. Despite this recent strong move higher,
though, we think that Universal could move higher still. The
stock appears to have solid support from its 10-dma, which has
been lifting the share price higher for the past month. What's
more, this uptrend is bolstered by a positive MACD and and strong
On-Balance Volume, suggesting the stock has the legs to go
higher. As for the downside, Universal appears to have support
at its recent consolidation range at $37.00 followed by its 40-
day moving average, currently at $35.00. Traders considering a
position in Universal should look for higher-than-average volume,
40,000 shares or more traded by noon EST, on a move through
yesterday's intra-day high of $39.20 before placing their trades.
Picked on March 11th @ $38.99
Change since picked +0.02
Stop Loss @ $37.00
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