Email Version, Section 1, Monday 03/19/01
The SplitTrader.com Newsletter Monday 03/19/2001 1 of 1
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In This Newsletter:
Market Commentary - Waking Up the Bull
Definition of the Day
Monday's Split Announcements - None
Tuesday's Play-of-the-Day - RDN
Waking Up the Bull
Only hindsight will tell us for sure when the market finally
reached a bottom. That said, there is growing evidence that we
are near the much-anticipated end to the slide in equity values.
Here are four events that may be signaling a bottom:
1. The past couple of Monday's have seen dismal market
performances following Friday declines, caused, in part, by
nervous traders unwilling to hold positions over the weekend. The
market broke that trend today.
2. Generally speaking, individual investors, even those with the
deepest pockets, are throwing in the towel by allowing margin-
based liquidations instead of throwing "good money after bad." The
final pain threshold may have been met.
3. One of the greatest media-based market trend indicators has
appeared. Time Magazine has placed a bear on its cover. Since
the Depression, Time Magazine has had an uncanny ability of
predicting market tops and bottoms when their esteemed editors
decide to run a cover story about the stock market. Stories that
cover huge bull moves usually pick tops and stories about
stampeding bears usually foretell market bottoms.
4. Another event that lends credence to the possibility that a
bottom is near is the fact that Corning (NYSE:GLW) rallied after
releasing bad news. The leading manufacturer of fiber optic cable
and one of the biggest winners during the bull market warned that
profit expectations for 2001 are diminishing and this year's
earnings may even fall below last year's profits of $1.23 a share.
Corning, which had already announced 825 job cuts from a global
workforce of 40,000, further stated that it will investigate the
need for even more job cuts.
GLW closed at $25.20, which was a gain of $2.02 on the day. A
rally following bad news from an industry leader is a good
indication that the overall market is approaching an important
I do not want to go so far as to say that we have definitely put
in a bottom. Some of today's rally can be attributed to the
pattern of market strength the day before anticipated rate cuts.
We have seen rallies just before the last few rate cuts only to
watch those gains dissipate during the following trading sessions.
There were rumors running through the Street that the Fed will cut
rates 75 basis points. No one knows for sure how much those
rumors helped the market today but it will be critical to see if
the market can hold the bulk of today's gains if the Fed only cuts
interest rates by the expected 50-basis points tomorrow.
It is also important to note that today's move can also be
attributed to the fact that the market was very oversold after
last week's monster declines. It is entirely possible that
today's rally had more to do with short covering profit taking
than a bona fide awakening of bulls.
For the record, the Dow Jones Industrials (INDU) moved up 135.70
points to a close of 9,959.11. There was not enough strength to
drive the index above the critical 10,000 resistance as trading
crested just below this level before pulling back.
The NYSE was led by gains from Merrill Lynch (NYSE:MER), up $3.70
to $58.50, Teradyne (NYSE:TER), up $3.52 to $34.94, St. Jude
Medical (NYSE:STJ), up $3.46 to $50.63, Best Buy (NYSE:BBY) up
$3.03 to $44.00 and Micron Technologies (NYSE:MU) gained $3.01 to
$43.06. It was very encouraging to see a leader board contain
stocks from such a diverse group of industries.
The NASDAQ (COMPX) rallied a healthy 60.28 points and closed at
1951.19. The COMPX closed near its high print of the day.
The NASDAQ point gain leaders included Qualcomm (NASDAQ:QCOM),
which gained $7.88 to $58.19, Juniper Networks (NASDAQ:JNPR), up
$5.38 to $58.44, Millennium Pharmaceuticals (NASDAQ:MLNM), up
$5.44 to $28.94 and Ebay (NASDAQ:EBAY), which picked up $4.56 to
Volume on the NYSE came in at 1.1 billion, while NASDAQ volume was
a healthy 1.75 billion. Both markets enjoyed positive breadth.
There were 20 winners for every 11 losers on the NYSE while the
NASDAQ saw a ratio of 22 winners for every 15 losers.
Some of the better performers on the current Splittrader.com Play
List were CEC Entertainment (NYSE:CEC), which picked up $1.60 to
$42.00, Radian Group (NYSE:RDN), which gained $0.30 to $61.30,
Universal Health Services (NYSE:UHS), which moved up $0.55 to
$84.92 and Mattel (NYSE:MAT), which was up $0.59 to $18.29.
There was some more good news that shows at least one major
research firm willing to explore the possibility that the stock
market is near a bottom. Banc of America Securities raised the
equity portion of their model portfolio to 65% from 60%. The
recommendation is in response to the out performance of the bond
portion of their model portfolio and the belief that the worst of
the stock market is starting to appear in the rear view mirror.
Lucent Technologies (NYSE:LU), the widely held and severely
pummeled telecommunications leader, finally received some good
news today. Lucent won a three-year contract worth $5 billion
from wireless telephone company Verizon (NYSE:VZ). The deal calls
for Lucent to supply Verizon with 65% of the Company's wireless
network equipment. LU gained $2.01 to $12.00. Verizon
Communications, which runs the Verizon Wireless business in
partnership with Britain's Vodafone Group (NYSE:VOD), rallied
$1.55 to $48.88.
Leading electronics component manufacturer Solectron (NYSE:SLR) is
active in after hours trading. The Company hit second quarter
estimates of 30 cents a share and posted revenue of $5.4 billion.
Nevertheless, the stock is down two points since closing the
regular trading session at $21.49. Solectron said that it will
take a restructuring charge of $300 to $400 million that will
cover the cost of slashing 10% of its workforce.
Obviously the big news tomorrow will be the result from the FOMC
meeting. However, before the market opens there will be a couple
of key earnings reports that may help to guide the early trading.
A.G. Edwards (NYSE:AGE) is expected to post profits of $0.65.
Fellow brokerage concern and investment banking leader Goldman
Sachs (NYSE:GS) is expected to post profits of $1.32.
After the market closes, technology investors will be watching the
earnings results from electronic components leader Jabil Circuits
(NYSE:JBL). JBL is expected to post profits of $0.21.
Going forward it is critical that the Dow Jones Industrials holds
the support offered by Friday's low 9720. A drop below this
support could occur if market participants are disappointed by a
rate cut of only 50-basis. To be honest, current economic data
suggests that a 75-basis point cut is probably unjustified. It
will be interesting to see if Greenspan has been influenced by the
argument that a recession could be severely exacerbated by
declining equity prices.
If we do get a 75-basis point cut tomorrow, we could see a rally
above the 10,000 resistance that could quickly shoot to 10,250.
The strongest argument for a continued bounce is the fact that the
INDU is very oversold according to the Relative Strength Index.
Whether a bounce can turn into a more significant rally remains to
NASDAQ (COMPX) resistance can be found at 2,030. Just like the
INDU, the COMPX is still extremely oversold on an RSI basis. This
fact leads one to believe that a short term bounce is quite
likely. A 75-basis rate cut could push the COMPX to the 2250
resistance by the end of the week. I am also happy to report that
a nice positive move tomorrow could trigger a buy signal according
to the MACD. This indicator has been very good in predicting
intermediate term trends. These trends tend to last for four to
It is difficult to recommend an aggressive move into stocks. That
said, at the very least, the market looks ripe for some selective
stock picking that could lead to some decent profits over the next
couple of weeks. It is entirely possible that a significant
bottom has been put in that should at least result in a
consolidation that will eventually test the previously mentioned
Good Luck! And may all of your trades be winning ones!
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Definition of the Day
- NASDAQ Composite Index -
A market-value weighted index of stocks traded on the NASDAQ.
For the complete definition, please go to:
Monday's Split Announcements
Tuesday's Expirations by Payable Date
Trading Split-Adjusted on March 21 -
Loews Corp (LTR) splits 2:1
99 Cents Only Stores (NDN) splits 3:2
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Play of the Day (For Tuesday)
Monday, March 19, 2001
Radian Group $61.30 +0.30
Radian (RDN) provides private mortgage insurance and risk
management services to residential mortgage lenders, commercial
banks and savings institutions. The company's niche market in
private mortgage insurance protects lenders from default on home
buyers who make down payments of less than 20% of a home's
purchase price. Focusing on this niche market has paid off
tremendously for the company. RDN grew annual EPS by a staggering
68% last year. Wall Street has also taken notice of the company's
performance, as all nine firms covering RDN presently hold a "Buy"
rating on shares. Currently, RDN has 80.0 million shares
authorized and 46.25 million shares issued, with the last recorded
split having taken place on December 2nd, 1996 at $76. Although
the BoD will need to authorize more shares before a 2:1 stock
split can take place, we certainly feel this is a possibility. As
for the stock, we feel RDN may be forming a bottom. The technical
indicators certainly suggest this, with both the MACD and
stochastic on the verge of bullish crossovers. In addition, the
$60 level has held as support a staggering eight times over just
the past month and a half. With that said, should shares trend
higher in the upcoming week, we'll look for resistance to occur at
the 50-dma of $61.78, followed by a stiffer challenge at $65.
Support will come at the $60 mark. Look to time entries when RDN
shares bounce off support or break above the 50-dma on volume of
at least 225,000 shares traded by midday. We'll set our initial
stop at $59, to limit our downside risk.
Despite reporting outstanding quarterly results last month,
Radian's stock has gone nowhere fast, trading in a $55 to $65
range for the past three weeks. Trader enthusiasm for Radian has
probably been muted by interest rate concerns, which could change
tomorrow should the Fed come through with a 75-basis point cut in
the fed funds rate. Still, even if the market doesn't get 75-
basis points, Radian shouldn't move much lower. The stock
appears to have solid support at $60, from where it has inched
gradually higher over the past four sessions to Monday's close of
$61.30. At its current price, Radian does have some immediate
overhead resistance at its 10- and 200-day moving averages at
$61.90 and 62.84, respectively. However, once these levels are
breached a move to $65 could be in he cards. To that end, the
MACD looks set to turn positive while the Relative Strength Index
is showing the stock to being close to oversold. Traders
considering a position in Radian will likely have to be patient
because it just isn't a fast mover. With that said, entry points
could be considered on a move through Monday's intra-day high of
$61.55 on volume of 200,000 shares traded by noon EST.
Picked on March 18th @ $61.00
Change since picked +0.30
Stop Loss @ $59.00
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