Email Version, Section 1, Sunday 05/13/2001
The SplitTrader.com Newsletter Sunday 05/13/2001 1 of 2
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In This Newsletter:
Market Commentary - All Good Things Must End
Definition of the Day
Friday's Split Announcements - MSCC, HTLD
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) 10,821.31 -129.93 10,300 11,000
Nasdaq (COMPX) 2,107.36 - 84.30 1,850 2,250
S&P 500 (SPX) 1,245.65 - 20.94 1,180 1,275
Russell 2000 (RUT) 487.36 - 5.53 450 508
PHLX Semi (SOX) 616.78 - 22.17 575 725
All Good Things Must End
With that clichi in mind, you knew the market's recent winning
streak would eventually end, which it did on Friday when all
three major indices finished in the red. This marked the first
time since April 6th that the Nasdaq Composite Index (COMPX), the
Dow Jones Industrial Average (INDU) and the S&P 500 Index (SPX)
had made a weekly sojourn to the nether regions.
Traders were sent shuffling towards the exits on Friday after a
triumvirate of economic releases warned that the halcyon days of
interest rate cuts might be over.
First, it was reported that American consumers haven't lost their
lust for spending, despite rising layoffs and stock portfolio
losses. According to the Commerce Department, retail sales
gained 0.8 percent in April, which easily trumped the consensus
forecast for a slim increase of 0.1 percent. Much of the gain
could be attributable to the every-rising price of gasoline,
which, on average, is fetching $1.70 a gallon these days.
Then, the University of Michigan reported that its preliminary
gauge of consumer sentiment rose to 92.6 in May from 88.4, which
topped forecasts and brought the index to its highest levels
Finally, another government report showed that the Producer Price
Index (PPI), which measures prices at the wholesale level, gained
0.3 percent in April. However, the core PPI (PPI sans food and
energy) advanced a modest 0.2 percent, which effectively means
that prices at the producer level are standing pat.
At first glance, this latest slate of economic data releases
would appear bullish. However, the market is still concerned
about a recession. What's more, it's counting on the Federal
Reserve to continue cutting interest rates to prevent one.
Friday's reports raised fears that the Fed might not be so
aggressive when it meets next Tuesday, which prompted the
For the day, the COMPX was nicked for 21.43 points, or 1.01
percent, to close at 2,107.43, its lowest finish since April 27.
The tech-laden index was pressured by two of its heaviest
hitters: chip giant Intel (Nasdaq:INTC) finished off $1.07 at
$27.94, and software king Microsoft (Nasdaq:MSFT) eased $0.60 to
As for the Old-Economy, the INDU fell 89.13 points, or 0.82
percent, to end at 10,821.31. Among the hardest hit were the
INDU's cyclical shares: Alcoa (NYSE:AA), J.P. Morgan Chase
(JPM), International Paper (NYSE:IP), General Motors (NYSE:GM)
and DuPont (NYSE:DD) were all victims of profit takers on Friday.
As for the broader market, the SPX lost 9.51 points, or 0.76
percent, to finish at 1,245.67, its lowest close since April 26.
Traders could take some solace knowing few of them were sprinting
towards the exit. Only 894 million shares traded on the NSYE,
which is the fewest since December 26, while only 1.40 billion
shares changed hands on the Nasdaq, its lightest day of the year.
Light volume is consider a positive sign when market breadth
For the week, the COMPX declined 3.8 percent, the SPX 1.7 percent
and the Dow 1.2 percent. But let's keep our perspective. Since
hitting its recent low of 1638.8 on April 4, the COMPX is up 30
percent. The INDU has climbed 16 percent since its recent trough
on March 22, while the SPX has advanced 14 percent from its April
In stock news on Friday, Vince McMahon's bad-taste and nepotism
ridden World Wrestling Federation Entertainment (NYSE:WWF) gained
$1.04 to $14.19 after it folded the XFL football league less than
a month after its first season ended. The WWF said the league,
which it co-owned with NBC television, will post a loss of about
$35 million. (I can only wonder what my favorite XFL player, He
Hate Me, will do for employment since his skills aren't quite up
to NFL standards.)
In Splittrader.com stock news, our Current Play list bucked the
selling trend once again by advancing 6.7 percent for the week.
We posted strong gains in Cross Timbers Oil (NYSE:XTO), Allegheny
Energy (NYSE:AYE) and H&R Block (NYSE:HRB). Advances in these
three stocks were more than enough to offset losses in Williams
Sonoma (NYSE:WSM) and Lear Corp. (NYSE:LEA).
Cross Timbers Oil, in particular, might be of interest to
traders. We've also been enamored of stocks displaying chart
patterns showing higher lows while following a longer-term
positive trend. One caveat on Cross Timbers, though, it looks
like it might run into near-term resistance at $28.00, which is
one reason we raised our stop this weekend to $27.00. (Like most
traders, we hate to give back gains, which is why the stop is so
Chart of Cross Timbers Oil:
Switching to the credit markets, government bond issues were
again hard hit Friday, as investors were spooked by the stronger-
than-expected retail sales report and higher consumer confidence
figures. The 10-year Treasury note tumbled 1 13/32 to yield 5.49
percent while the 30-year government bond slumped 1 18/32 to
yield 5.88 percent. The long bond now is at its highest yield in
Looking ahead, the Federal Reserve's FOMC meeting set for Tuesday
will undoubtedly be the main attraction this week. Traders
generally anticipate another half-percentage point cut at
Tuesday's meeting, which means a reduction in the fed funds rate
to 4 percent.
As of Friday, the fed funds futures rate was priced to average
4.08 percent in June, which implies a 60 percent chance of a 50
basis point interest rate cut coming from Tuesday's FOMC meeting.
However, this is down significantly from a 90 percent chance only
two weeks. In other words, a half-point cut isn't a slam-dunk.
In addition to the Fed, traders will have to sort through a new
set of economic date releases. Business inventories, industrial
production and capacity utilization commence the week's major
economic data on Monday. The market consensus is calling for
business inventories to have fallen 0.2 percent in March,
following February's 0.2 percent decline. Industrial production
is also expected to have declined 0.2 percent, off that amount
for the month of April, and off sharply from a 0.4 percent
increase in March. Capacity utilization, a measure of plant
usage, is expected to have increased 79.1 percent in April, from
79.4 percent in March.
On Wednesday, the Consumer Price Index (CPI) and core CPI is
scheduled for release. The CPI is expected to have risen 0.4
percent in April, up from a 0.1 percent increase in the previous
month. Meanwhile, core CPI is expected to have climbed 0.2
percent for the month, unchanged from its gain in March.
On Thursday, the Leading Economic Indicators are scheduled for
release. The LEI is forecasted to have advanced 0.1 percent in
April, up sharply from a 0.3 decline in the prior month.
Closing out the week on Friday are the U.S. trade balance of
goods and services and the U.S. monthly budget statement. The
U.S. trade gap is expected to have widened to a deficit of $29.0
billion in March, up from a $27.0 billion deficit in February,
while the U.S. budget for the month of April is forecasted to
show a surplus of $180 billion.
On the earnings docket, retailers, many of whom rallied on
April's unexpectedly strong sales figures, will take center
stage. K-Mart (NYSE:KM), the Gap (NYSE:GPS) and Home Depot
(NYSE:HD) are all scheduled to announce quarterly results. In
technology, Dell (NYSE:DELL), Hewlett-Packard (NYSE:HWP) and
Ciena (Nasdaq:CIEN) will post their earnings.
As for trading this week, don't expect much action ahead of
Tuesday's FOMC meeting. After the meeting, though, it's a
different story. I expect the markets to experience mild selling
pressure should the Fed announce a 50 basis point cut and severe
selling pressure should it announce a 25 basis point cut.
However, once the initial reaction wears off, I think the markets
will stabilize, which could mean more range-bound trading.
To that end, the COMPX is bound between 2000 support and 2250
resistance. For the INDU, the range is 10,600 to 11,000. A
close above 11,000 would be extremely bullish for the INDU
because it has tried numerous times over the past eight months to
breach 11,000. On the flipside, a close below 10,600 would be
bearish because that would mean we are looking at 10,300 again.
Over the past month, traders have gone from worrying about a
weakening economy to a strengthening economy. The new outlook was
apparent in the bullish reaction to the sharp rise in the April
jobless rate reported recently and the bearish response to the
seemingly encouraging economic news on Friday.
This schizophrenic behavior is downright silly; a growing economy
is good, particularly a growing economy with little inflationary
pressures outside of energy. The fact is, retailers are
improving, the number of jobless claims is shrinking and the Fed
is meeting next week to most likely cut rates.
When the Fed ends its damage control mode, that could mean that
the economy is indeed strengthening, which means corporate
profits will soon be expanding. So you might think twice about
unloading the portfolio if the Fed cuts rates by only 25 basis
points. That could be the signal the Fed's job is over and that
the economy will soon be hitting on all cylinders again.
Investors have gotten used to aggressive easing actions by the
Fed, which has taken down short rates by two full percentage
points so far this year, and don't like the prospect of an end to
the rate cuts.
Definition of the Day
Federal Reserve Board
This is the seven member governing board of the Federal Reserve
System that is responsible for establishing policy for the
Federal Reserve Banks.
For the complete definition, please go to:
Friday's Split Announcements
Friday, May 11, 2001, Before the Bell
Microsemi's Board approves 2-for-1 stock split
Before regular trading today, Microsemi Corporation (Nasdaq:MSCC)
announced intentions for splitting their common shares on a 2-
for-1 basis, payable in the form of a 100 percent stock dividend.
For the complete announcement, please go to:
Friday, May 11, 2001, During the Market
Heartland Announces 5-for-4 Stock Split
During regular trading today, trucking company Heartland Express
Inc. (Nasdaq:HTLD) declared a 5-for-4 stock split, payable in the
form of a 25 percent stock dividend to shareholders of record on
May 21, 2001.
For the complete announcement, please go to:
Mondays Expirations by Payable Date
Constellation Brands (STZ) splits 2:1
For the week of May 14th, 2001
Business Inventories Mar Forecast: -0.20% Previous: -0.20%
Industrial Production Apr Forecast: -0.20% Previous: 0.40%
Capacity Utilization Apr Forecast: 79.10% Previous: 79.40%
Kansas City Fed Mfg. Q2 Forecast: NA Previous: -6.0
FOMC Meeting Forecast: NA Previous: NA
NAHB Housing Idx May Forecast: NA Previous: 56
CPI Apr Forecast: 0.40% Previous: 0.10%
Core CPI Apr Forecast: 0.20% Previous: 0.20%
Housing Starts Apr Forecast: 1.605M Previous: 1.613M
Building Permits Apr Forecast: NA Previous: 1.615M
Internet Sales Q1 Forecast: NA Previous: $8.7B
MBA Mortage App 11-May Forecast: NA Previous: 558.9
Oil and Gas inventory 11-May Forecast: NA Previous:318.8MB
Initial Claims 12-May Forecast: NA Previous: 384K
Philadelphia Fed May Forecast: -10 Previous: -7.2
Leading Indicators Apr Forecast: 0.10% Previous: -0.30%
FOMC Minutes Forecast: NA Previous: NA
Trade Balance Mar Forecast:-$29.0B Previous:-$27.0B
Treasury Budget Apr Forecast:$180.0B Previous:$159.5B
ECRI Wkly Leading Idx 11-May Forecast: NA Previous: 123.2
Week of May 21st
May 24 Initial Claims
May 24 New Home Sales
May 25 Durable Orders
May 25 GDP-Prel.
May 25 Chain Deflator-Prel.
May 25 Existing Home Sales
May 25 Mich Sentiment-Rev.
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
AXA - AXA Group 2:1 05/15/2001 05/16/2001
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
DGX - Quest Diagnostics 2:1 05/30/2001 05/31/2001
BJ - BJ Services 2:1 05/31/2001 06/01/2001
PKI - PerkinElmer 2:1 06/01/2001 06/04/2001
UHS - Universal Health Services 2:1 06/01/2001 06/04/2001
KNGT - Knight Transportation 3:2 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
WFMI - Whole Foods Market 2:1 06/04/2001 06/05/2001
XTO - Cross Timbers 3:2 06/05/2001 06/06/2001
EQT - Equitable Resources 2:1 06/11/2001 06/12/2001
Successful Announcement Predictions For The Past Week
Symbol Company Date Announced
APPB Applebees Intl, Inc. 05/10
NEW SPLIT CANDIDATES LIST
ESI - ITT Education Services $36.95 (+1.16)
ESI last announced a 3:2 split back in 1996 at about $33. Since
then it performed well up into 1999 when it crashed. However,
since early 2001 ESI has been on a tear and is right back to 3:2
split-territory. The firm has 150 million shares authorized and
only 27 million outstanding. We are targeting ESI's unofficial
earnings release date of 7/19 as the next probable time for a 3:2
MTH - Meritage Corporation $49.78 (+10.03)
This homebuilder has split many a 2X4 but has never split its
shares. Since the stock is now knocking on the $50 level, we
feel a 2:1 split is warranted. The company has 50 million shares
authorized and only 5 million outstanding. Since the firm just
reported earnings on 4/26, we will keep our eyes open for the
next BoD meeting as far as a likely announcement date.
RYL - Ryland Group, Inc. $54.05 (+2.09)
Ryland is another homebuilder who has never split its shares.
With the resurgence of the homebuilders, RYL has been breaking
out to new highs. With 78 million shares authorized and only 13
million outstanding, RYL has plenty of leeway for a 2:1 split.
We are looking forward to the firm's next BoD meeting as the next
likely time for a 2:1 split announcement.
THQI - THQ, Inc. $44.05 (+0.05)
The maker of video games has been a high scorer this year. THQI
last announced a 3:2 split in October of 1999 when the stock was
trading at $42.25. We have obviously shot right by this historic
split-level, so another 3:2 should be up and coming soon. We are
anticipating an announcement to coincide with THQI's earnings
unofficial announcement date of 7/24.
Expected/Likely Announcements for the Coming Week
Symbol Company To Announce
MKL Markel Corporation 05/16
ADVP AdvancePCS 05/17
MDU MDU Resources Group 05/17
MKL - Markel Corporation $194.00 (-4.05)
Markel has not split its shares since 1989. Due to the fact that
the stock is closing in on $200, we feel it's about time for
split. The firm has 15 million shares authorized and 8 million
outstanding, so a 2:1 will require the board approval of more
shares. We feel the BOD meeting scheduled for 5/16 would be a
good time for the split announcement.
ADVP - AdvancePCS $61.10 (+0.55)
ADVP last announced a 2:1 split in October of 1999 at $50.25.
Since then the stock has been on a steady roll higher and is now
approaching the $65 level. We believe another 2:1 split is in
the cards for 5/17 when the company reports its earnings.
MDU - MDU Resources Group $38.96 (-0.14)
MDU last split 3:2 at around $33 in 1998. With the recent
resurgence of the energy sector, MDU is again knocking on the
door of 3:2 split-levels. The company has 150 million shares
authorized and only 65 million outstanding, so a 3:2 is certainly
possible. The firm has its BoD meeting on 05/17, which is our
target for the 3:2 announcement.
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