Email Version, Section 1, Wednesday 03/21/2001
The SplitTrader.com Newsletter Wednesday 03/21/2001 1 of 1
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In This Newsletter:
Market Commentary - Dow Makes for Bear Territory
Definition of the Day
Wednesday's Split Announcements - None
Thursday's Play-of-the-Day - SIAL
Dow Makes for Bear Territory
It was only a matter of time. Through January and February the
Dow Jones Industrial Average (INDU) stubbornly fought the trend
to trade within a boring, though wealth preserving, 10,300 to
11,000 range. Well, those halcyon days are now only a fond
memory. The INDU has tanked over 1,300 points, or 12 percent,
over the past two weeks to obliterate any remnants of those
Of those 1,300 points, 233.76 were realized today when the INDU
closed at 9,487.00, putting the blue-chip barometer down 19.1
percent from its all-time closing high of 11,722 and only 110
points shy from a closing print of 9,377, which would officially
signify a bear market. Today's major culprits were American
Express (NYSE:AXP), Johnson & Johnson (NYSE:JNJ) and Microsoft
(Nasdaq:MSFT), all of which lost more than $2 in share value.
However, they weren't alone. Of the 30 INDU stocks, 25 finished
in the red. Bucking the trend were Intel (Nasdaq:INTC)
International Business Machines (NYSE:IBM), Wal-Mart (NYSE:WMT),
Hewlett-Packard (NYSE:HWP) and Disney (NYSE:DIS).
With today's latest round of capitulation, the INDU is trading at
levels not seen since February 1999.
No need to worry, though, because the INDU didn't go down alone -
- it had plenty of company. The Nasdaq Composite Index (COMPX)
continued to give up value like a drunken sailor on furlough.
Today, the COMPX was rolled for 27.21 points, or 1.46 percent, to
1,830.23, meaning the COMPX is once again trading at October 1998
levels (the genesis of its exponential move to 5,132).
Oddly (at least for the COMPX), the tech-heavy index traded in
positive territory for part of the day. The COMPX was bolstered
for a while by Qualcomm (Nasdaq:QCOM) and Oracle (ORCL). The
pair signed a deal that will have Oracle supplying Qualcomm with
e-business application suites. For the day, Qualcomm added $4.13
to $58.13 while Oracle added $0.63 to $14.75.
As for the broader market, the S&P 500 (SPX) fell 20.49 points,
or 1.79 percent, to 1,122.13, which means the SPX is now trading
at a 27 percent discount to its March closing high of 1,527 and a
32 percent discount to Abbey Joseph Cohen's year-end target of
All in all, $5.1 trillion in market value has evaporated over the
past year, as measured by the Wilshire 5000 Total Market Index,
with $225 billion of that sum coming today.
Needless to say, with the major market indices again going down
for the count, market breadth was, of course, again dreadful. On
the Nasdaq, losers beat winners 2,487 to 1,228 on 2.08 billion
shares while decliners pummeled advancers on the NYSE 2,212 to
859, as more than 1.3 billion shares changed hands.
There was one bright spot in this otherwise gloomy day. The
semiconductor sector rallied after yesterday's sell-off. In
fact, the PHLX Semiconductor Index (SOX) added 15.97 points to
close at 558.02. Leading the SOX higher were Texas Instruments
(NYSE:TXN), lattice Semiconductor (Nasdaq:LLTC), Applied
Materials (Nasdaq:AMAT) and KLA Tencor (Nasdaq:KLAC). Moreover,
the SOX appears to have established support at 540, at least
based on the past four trading sessions.
But large storm clouds were the rule for the day, and there were
few more rotund than computer-skills classes provider Learning
Tree International (Nasdaq:LTRE), which slumped $11.13 to $15.38
after reporting that fiscal second-quarter earnings will fall
short of analysts' estimates because of lagging enrollment.
Some notable big-cap names also rained on today's market.
Consumer products king Procter & Gamble (NYSE:PG) lost $2.70 to
$63.20 after the Wall Street Journal reported that the company
will cut 10 percent to 20 percent of its workforce.
Meanwhile, General Electric (NYSE:GE) continued to make for terra
firma like so many Russian space stations. The market-cap king
lost another $1.05 to close at $39.00, a closing low not seen
since October 1999. What's more, GE has seen its market cap
shrink over the past seven months from a world-beating $596
billion to a still world-beating, but more pedestrian, $386
As for economic news, there wasn't much constructive to report
here, either. The Consumer Price Index (CPI) for February came
in at 0.3 percent, which was stronger than the consensus estimate
for 0.2 percent. The CPI was bolstered by rising costs for
clothing, medical care and airline tickets. In addition, the
"core" CPI (CPI sans food and energy costs) also rose 0.3
percent, meaning the core CPI is rising at an annual clip of 2.7
The CPI report got a chilly reception from investors and traders
already smarting from yesterday's 50-basis point cut in the fed
funds rate. Many traders believe that the stronger-than-expected
CPI number could prevent the Fed from cutting interest rates
again before the next FOMC meeting on May 15th.
However, that sentiment isn't universally shared. Bear Stearns
chief economist Wayne Angell, for one, told clients that the
statement that accompanied the Fed's cut on Tuesday strongly
suggests Chairman Alan Greenspan is considering a further
reduction between meetings. Keep in mind, though, Angell, was
hung out to dry last month when he predicted that the Fed would
likely make a cut before yesterday's FOMC meeting, something the
Fed failed to do.
Inflation fears coupled with diminished inter-FOMC interest rate
cut prospects took their toll on the Treasury market as well.
The 10-year Treasury note finished down 2/32 to yield 4.77
percent while the 30-year government bond slipped 2/32 to yield
Not that interest rates are the sole consolidator in this ever-
shrinking market, don't forget about earnings concerns.
According to First Call, analysts expect S&P 500 companies'
profit growth to slow to about 1.5 percent this year from 16.2
percent in 2000, which means we will probably be deluged by
another flood of earnings warnings in the second quarter.
The prospect for continued bad news obviously doesn't bode well
for the long end of the market over the short term, though there
are signs that we may be reaching full capitulation. The recent
selling in GE stock could be one such sign. This last hold out
among the big-cap stocks finally looks ready to fold its cards
(if it hasn't already). For most of the year, GE has traded in a
tight range of $43 to $48. However, that range was obliterated
on a gap-down sell-off that occurred on March 12th.
Another sign the end may be near is the increasing number of days
where down volume exceeds up volume by at least a 2-to-1 margin
on the Nasdaq and NYSE markets. In February, the NYSE only
experienced two days where down volume exceeded up volume by more
than a 2-to-1 margin. In March, the Big Board has already
experienced six such days.
Still, like I said in Sunday's commentary, I would like to see
one final resounding flush were we get losers routing winners by
a 25-to-1 margin on down volume exceeding up volume by a 10-to-1
margin before I declare the worst over. Of course, markets
usually aren't that conciliatory.
In the meantime, don't be surprised should the INDU make a go for
9,377 before the week is over, so keep those stop-losses tight.
Why put all your risk into one stock when you can play the
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Definition of the Day
A tick can either be an upward or downward movement in the price
of a security.
For the complete definition, please go to:
Wednesday's Split Announcements
Thursday's Expirations by Payable Date
First Republic Bank (FRC) splits 3:2
Mark Leibovit, the #1 market timer in the nation, will be
on the Nightly Business Report discussing his Annual
Forecast Model on Friday evening February 23 (between 5:30
and 7:00 p.m. ET).
Mark is Chief Market Strategist for VRTrader.com, a Premier
Investor Network website, a technical consultant and former
'Elf' on Louis Rukeyser's Wall Street Week for 7 years.
His Annual Forecast Model has been subscribed to by Wall
Street's most elite. Mark is presently ranked #1 timer in
the nation by TIMER DIGEST and #2 on AmericasBestTimers.com.
For information on his extremely accurate Annual Forecast
Model for your own viewing, click here:
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.
Wednesday, March 21, 2001
SIAL - Sigma-Aldrich $45.88 +0.44 (+2.50)
Specialty-chemical manufacturer Sigma-Aldrich bucked the
overall market trend to move higher today, as some traders
continue to look for any semblance of safety on the long side
of the market. What's more, Tuesday marked the third-
consecutive day that SIAL made for higher ground. Today's move
came on better-than-average volume of 915,000 shares; nearly
double the three-month average of 525,000, so there was some
conviction behind the buying. With the recent rally, SIAL has
caught support at what appears to be a consolidation base at
$43.00, which should be bolstered by the 10-dma at $45.08.
Above, SIAL has immediate resistance at the March 9 intra-day
high of $46.06 followed by today's intra-day high of $47.50.
With the MACD set to turn positive, we wouldn't be surprised
if SIAL takes out immediate resistance sooner rather than
latter. With that said, traders interested in taking a
position in SIAL could consider an entry point on a move
through the March 9 high of $46.06 on 300,000 shares traded by
noon. Should SIAL fall apart, however, we will limit our
losses with a stop-loss just below the 40-dma at $42.25
Make it four days in a row for our relatively new play. As
the market tanks, SIAL keeps heading for new highs. We can't
wait to see what the stock will do on a strong day in the
markets! Today's strong move against the overall prevailing
downtrend was backed by volume that came in greater than two-
times the stock's three-month average of 525,000 shares. With
the move higher, SIAL's MACD is about to roll positive and its
OBV has just reached new highs. The stock closed just shy of
its 3/9/01 high of $46.13, but if volume keeps trending higher
along with OBV, this obstacle should be a thing of the past
very soon. As mentioned, near term resistance for SIAL comes
in at $46.13 and support remains intact at $44, the bottom of
the stock's recent cup formation. Traders can look towards a
break and close above $46.13 on volume of at least 600,000
shares traded by day end as the best risk/reward entry point
into this stock. In addition, a pullback to $44 on lighter
volume (less than 400,000 shares) with a subsequent bounce
would also make a good, low-risk entry point. We are keeping
our stops firm at $42.25 in case the stock changes course.
Picked March 20th @ $45.44
Change since picked +0.44
Stop Loss @ $42.25
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