Email Version, Section 2, Sunday 05/06/2001
The SplitTrader.com Newsletter Sunday 05/06/2001 1 of 2
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In This Newsletter:
Market Commentary - Markets Survive And Then Thrive
Definition of the Day
Friday's Split Announcements - GCBC
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) 10,951.24 +141.19 10,300 11,000
Nasdaq (COMPX) 2,191.66 +115.84 1,850 2,250
S&P 500 (SPX) 1,266.59 + 13.52 1,180 1,275
Russell 2000 (RUT) 492.89 + 8.92 450 508
PHLX Semi (SOX) 638.95 - 3.79 575 725
Markets Survive And Then Thrive
A bear-market trap or the beginning of a bull-market? No one
really knows. But for many traders, the month-long rally has
been a welcomed respite from a year of decaying stock portfolios.
Since the market bottomed on April 4, the Nasdaq Composite Index
(COMPX) has soared 35 percent, the Dow Jones Industrial Average
(INDU) has surged 17 percent and the S&P 500 Index (SPX) has
gained 15 percent. Not a bad little rally, if I do say so. (Of
course, the COMPX was off 65 percent, the INDU was off 20 percent
and the SPX was off 30 percent from their respective all-time
highs, but who's counting?)
Further proof that the market is once again embracing the bull is
trader and investor response to Friday's employment report, which
was downright bearish to us folks who actually have to produce
something in order to survive. According to the Labor
Department, the U.S. economy lost more jobs in April than at any
time over the past decade. Payrolls plunged 223,000 after
declining 53,000 in March. Analysts had expected a jobless rate
of 4.4 percent in April and an increase of 20,000 jobs.
Paradoxically, average hourly earnings rose a nickel to $14.22, a
0.4 percent gain. Analysts were expecting earnings to grow 0.3
Yes, the unexpectedly poor April employment report made the
prospect of a recession even more likely this year, but no one
seemed to care, at least not for very long. The INDU fell 123
points and the COMPX tanked 57 points in the first hour of
trading, but that was just a case of neophyte jitters. Soon
after, the market regained its footing and resumed its accession.
For the day, the COMPX climbed 45.33 points, or 2.11 percent, to
2,191.53 thanks to a strong outing by the Triplets. Microsoft
(Nasdaq) added $2.22 to $70.75, its highest closing level since
November 9, Cisco Systems (Nasdaq:CSCO) climbed $0.98 to $19.64
and Intel (Nasdaq:INTC) inched ahead $0.48 to $30.88. Since
hitting their April 4 lows, all three are up more than 35
percent, which, not so coincidently, is why the COMPX is up just
For the week, the COMPX increased its value by 2 percent, as it
enjoyed its third consecutive weekly close above its 50-dma.
Moreover, the index is now perched atop its 62 percent
retracement from its 2001 high. At this point, I think it's safe
to say that the COMPX has strong support at 2,000.
Unfortunately, it also has strong resistance overhead,
particularly at 2,250, which coincides with the March and 50-
percent retracment levels. Above that, additional resistance
could be provided by the 38 percent retracement line near 2,400.
Chart of the NASDAQ Composite:
As for the Old Economy, the INDU rose 154.59 points, or 1.43
percent, to close the week at 10,951.24. The action was
decidedly bullish, as 25 of the average's 30 components finished
the day in the black. INDU frontrunners included American
Express (NYSE:AMEX), General Electric (NYSE:GE), Honeywell
(NYSE:HON), Alcoa (NYSE:AA) and J.P. Morgan Chase (NYSE:JPM).
I would be remiss if I didn't mention long-time Splittrader
favorite Philip Morris (NYSE:MO), which also closed Friday in the
black to hit a new 52-week high. The tobacco king is fast
approaching its all-time high of $59.50 set back in November
1998. At the beginning of the year, I said that I seriously
doubted that Philip Morris would repeat last year's feat of being
the INDU's best performer. The way Big MO has been performing
lately, though, I might have to eat my words.
Thanks to Philip Morris et al. the INDU is once again challenging
resistance at 11,000, which I think it could breach this week
since it breached resistance at 10,900 with relative ease.
Chart of the Dow Jones Industrial Average:
As for the broader market, the SPX gained 18.03 points, or 1.44
percent, to close at 1,266.61, putting the index above its 100-
dma for the first time since mid-September.
All in all, the markets are looking bullish technically, which
might be confusing to a few tyro traders in light of Friday's
weak unemployment report. Keep in mind that most economic
reports, like the unemployment report, are lagging indicators,
which means they do a poor job of foreshadowing the economy. In
fact, the best leading indicator is the stock market, which is
definitely not foreshadowing a recession. Following the last
recession in 1991, the jobless rate did not peak until June 1992,
over a year after the recession ended. In the meantime, the SPX
gained nearly 10 percent and the COMPX gained soared over 20
The point is that a recession is by no means a foregone
conclusion, despite the nearly decade-long expansion. If the
Federal Reserve continues to loosen the purse strings, which most
traders believe it will do, it's entirely possible we could
forego a recession altogether. To that end, the fed funds
futures rate is priced expecting another 50 basis point cut at
the next FOMC meeting on May 15.
What's more, the other significant capital market barometer, the
Treasury market, is also priced for recovery (or at least for
inflation, which often accompanies an expanding economy). On
Friday the 2-year note was the day's biggest gainer in the fixed-
income arena, gaining 4/32 to yield 4.14 percent. Meanwhile, the
10-year Treasury note rose 2/32 to yield 5.21 percent while the
30-year government bond shed 11/32 to yield 5.66 percent. Taken
in aggregate, the Treasury instruments form a decidedly bullish
Of course, how this week pans out will depend on the week's
economic and earnings reports.
On Monday U.S. consumer credit for March is slated for release.
Consumer credit is expected to have contracted to $9.8 billion
for the month, off from $13.5 billion in February.
On Tuesday non-farm productivity is expected to have risen 1.1
percent during the quarter, off from its prior increase of 2.2
percent. Unit labor costs are expected to hold steady at 4.3
percent in their first quarter estimate, unchanged from their
prior showing. As long as productivity keeps increasing, wage
inflation won't be a problem.
Ending this week's economic news will be the Producer Price Index
(PPI), core PPI (PPI sans food and energy) and the University of
Michigan's Confidence Index. Market consensus is calling for PPI
to have risen 0.3 percent in April, up sharply from a 0.1 decline
in March. Core PPI is expected to have increased 0.1 percent for
the month, unchanged from its March showing. Meanwhile,
Michigan's Confidence Index - a gauge of consumer sentiment on
the economy and personal finances - is expected to post an index
reading of 88.5 in its first estimate for this month, which is
little changed from its final April reading of 88.4.
As for earnings, technology again takes center stage, with Cisco
Systems as its star. On Tuesday the Internet router king is
expected to post earnings of $0.02 a share on revenue of $4.69
billion, according to the consensus estimate compiled by First
Call. During the same quarter last year, Cisco reported earnings
of $0.14 a share on revenue of $4.92 billion. At that time Cisco
was priced to out performer the SPX for the next nine years.
There's a lesson to be learned here, folks. When a company has
nothing but good news priced into its stock (meaning it's usually
sporting a triple-digit P/E ratio), it's time to sell.
As for trading this week, Cisco will probably set the pace in the
early going. But since no one is expecting much out of the
company, any excessively bad or good news will likely have a
fleeting impact on trader psyche.
The fact is, sentiment is once again bullish, at least according
to money flows. Trim Tabs estimated that all equity funds got a
$14.9 billion inflow in the week ended May 2, compared with
inflows of $100 million during the prior week. Don't be
surprised if the inflow figure swells over the subsequent weeks.
There is nearly $2 trillion stashed in money market funds that's
waiting to be put to work. Moreover, pension and mutual funds
are sitting on historically high levels cash.
Finally, according to the Stock Trader's Almanac, the first two
weeks of May often produce the biggest gains in the late-
spring/early-summer trading season, which means if past is indeed
prologue, we could be looking at INDU 11,000 and COMPX 2,300
before the week is through.
Definition of the Day
A "breakout" occurs when the stock penetrates and closes well
above or below a defined price support or resistance area.
For the complete definition, please go to:
Friday's Split Announcements
Friday, May 04, 2001, During the Market
Greene County to Split Stock on 5-for-1 Basis
Greene County Bancshares Inc. (Nasdaq:GCBC) announced this
morning that the Board of Directors approved a 5-for-1 stock
split on April 25, payable in the form of a stock dividend. The
payable date is set for May 29, 2001 to shareholders of record as
of May 15, 2001.
For the complete announcement, please go to:
Monday's Expirations by Payable Date
For the week of May 7th, 2001
Consumer Credit Mar Forecast: $9.8B Previous: $13.5B
Productivity-Prel Q1 Forecast: 1.10% Previous: 2.20%
Wholesale Inventories Mar Forecast: 0.20% Previous: -0.10%
Richmond Fed Mfg. Apr Forecast: NA Previous: -9.0
Oil & Gas Inventory 4-May Forecast: NA Previous:318.2MB
Initial Claims 5-May Forecast: NA Previous: 421K
Export Prices ex-ag. Apr Forecast: NA Previous: -0.10%
Import Prices ex-oil Apr Forecast: NA Previous: -0.90%
PPI Apr Forecast: 0.30% Previous: -0.10%
Core PPI Apr Forecast: 0.10% Previous: 0.10%
Retail Sales Apr Forecast: 0.20% Previous: -0.20%
Retail Sales ex-auto Apr Forecast: 0.50% Previous: -0.10%
ECRI Wkly Leading Idx 4-May Forecast: NA Previous: 122.0
Week of May 14th
May 14 Business Inventories
May 14 Industrial Production
May 14 Capacity Utilization
May 16 CPI
May 16 Core CPI
May 16 Housing Starts
May 16 Building Permits
May 17 Initial Claims
May 17 Philadelphia Fed
May 17 Leading Indicators
May 18 Trade Balance
May 18 Mich Sentiment-Prel.
May 18 Treasury Budget
Symbol Company Name Splits Payable Executable
PPDI - Pharmaceutical Product 2:1 05/11/2001 05/14/2001
MKT - Advanced Marketing Service 3:2 05/11/2001 05/14/2001
SOTR - SouthTrust Corp. 2:1 05/11/2001 05/14/2001
STZ - Constellation Brands 2:1 05/14/2001 05/15/2001
WM - Washington Mutual 3:2 05/15/2001 05/16/2001
CHS - Chicos FAS, Inc. 3:2 05/16/2001 05/17/2001
IVX - IVAX Corporation 5:4 05/18/2001 05/21/2001
CNL - Cleco Corp. 2:1 05/21/2001 05/22/2001
GCBC - Greene County Bancorp 5:1 05/29/2001 05/30/2001
STT - State Street Corp. 2:1 05/30/2001 05/31/2001
BAX - Baxter International 2:1 05/30/2001 05/31/2001
PKI - Perkin Elmer 2:1 06/01/2001 06/04/2001
UHS - Universal Health Services 2:1 06/01/2001 06/04/2001
FIC - Fair, Isaac & Co. 3:2 06/04/2001 06/05/2001
COLM - Columbia Sportswear 3:2 06/04/2001 06/05/2001
XTO - Cross Timbers 3:2 06/05/2001 06/06/2001
Successful Announcement Predictions For The Past Week
Symbol Company Date Announced
RDN Radian Group, Inc. 05/01
NEW SPLIT CANDIDATES LIST
GD - General Dynamics $78.52 (+2.02)
GD last announced a 2:1 split back in March of 1998 when the
stock was trading at $86.88. With the recent run up to the $80-
level, another 2:1 split could come with the board approval of
more authorized shares. We are anticipating an announcement to
come with GD's earnings release date of 7/18.
ICOS - ICOS Corporation $58.49 (+5.10)
ICOS also has never announced a split, but since it is closing in
on its all-time high of $60, we feel a split could at any time.
However, we are targeting the company's next earnings release
date of 7/26 as the next probable time for a split announcement.
We are looking for a 3:2 split, since the firm is just shy of
having enough authorized shares for a 2:1.
MRCY - Mercury Computer Systems $51.57 (+1.41)
MRCY last announced a 2:1 split in November of 1999 at $48.50.
Given the stock's current price, we are right back to the
doorstep of split-levels. MRCY next reports earnings
unofficially on 7/18, which is our target for another 2:1
OMG - OM Group, Inc. $56.61 (+1.21)
OMG last split 3:2 in December of 1996 at $41.75. Given OMG's
current share price, the board is tardy in announcing another
split. We see another split announcement out of the chemical
company's earnings release, which is unofficially set for 7/24.
The company has plenty of shares authorized to enact a 3:2 split.
SYMC - Symantec Corporation $66.60 (+2.85)
What a difference a month makes. At the beginning of April, SYMC
was trading at $40. The stock is now right back into split
territory, having just breached the $65-level. The software
company last split 2:1 way back in October of 1991 at $67.75. We
are looking forward to the firm's earnings date of 7/25 as the
next probable time for a split announcement.
Expected/Likely Announcements for the Coming Week
Please use courier new font to view table
Symbol Company To Announce
VITL Vital Signs, Inc. 05/08
MND Mitchell Energy & Dev. 05/09
VITL - Vital Signs, Inc. $41.70 (+1.10)
VITL has yet to reward shareholders with a stock split. However,
due to the fact that it is closing in on the $45-level (historic
industry split level), we feel VITL may announce a 2:1 split in
conjunction with earnings on 5/08.
MND - Mitchell Energy & Dev. $50.95 (-6.71)
MND is another company that has yet to take the plunge and
declare a split. Since the company is currently trading near
all-time highs, MND is a wildcard to announce on 05/09 during its
Board of Directors meeting. The company has 200 million shares
authorized and only 4 million outstanding.
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