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Email Version, Section 1, Monday 06/18/01
The Newsletter           Monday  06/18/01   1 of 1
Copyright 2001, All rights reserved.
Redistribution in any form is strictly prohibited.

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In This Newsletter:

Market Commentary | Level 3 Gets Leveled
Definition of the Day
Monday's Split Announcements | None
Tuesday's Expirations
Tuesday's Play-of-the-Day | LOW


Market Commentary

Level 3 Gets Leveled

Before the market opened this morning, we got our typical
slew of earnings warnings and downgrades, predominately
from the battered and beaten down telecom sector. As was
widely expected, Level 3 Communications (NASDAQ:LVLT)
lowered revenue guidance and announced job cuts totaling
25% of its workforce, citing the continued slowdown of
spending for bandwidth by carriers. Shares of the
Broomfield, CO-based company have now lost more than 40% of
their value since June 1, continuing their downward ways
today, shedding another $1.65 or 21% to $5.97.

Goldman did their part to pressure the COMPX by lowering
estimates on the internet infrastructure sector, slashing
revenue estimates on EXDS, ISLD and MFNX. The broker cited
the continued dot-com erosion and expected pricing
pressures in the second half of 2001 as reasons for their

Not to be left out in the cold, Salomon Smith Barney made
cautious comments on software giant Microsoft, citing risk
in the company's June and September quarters' EPS figures,
although they reiterated their Buy rating and $85.00
target. Microsoft (NASDAQ:MSFT) finished the day down $1.14
or 1.68% at $66.88.

These negative events, coupled with the dog days of summer,
equaled a typical June session, with the major averages
trading just slightly on either side of the flat line for
most of the day, though the COMPX proved the weakest link.
We did find some solace in today's market action,
considering the highly negative technical picture seen on
daily charts of the Dow, Nasdaq and S&P 500. With closes on
Friday below the 50-dmas for the SPX and COMPX, and below
the more crucial 200-dma for the DOW, the opportunity for
much lower ground did exist this morning. Furthermore,
major sectors such as software, semiconductors and
networking are not offering support, and in fact dragged
down traders' optimism for a second half recovery due to
their bearish guidance and lack of visibility. Nonetheless,
a minor loss of just 1.9% by the tech heavy Nasdaq
Composite could also be viewed as somewhat positive,
although it seems like grasping for straws.

Perhaps the strength, or lack of noteworthy weakness, was
due to anticipation of database software giant Oracle
earnings report, which occurred after the bell. The firm's
CEO, the much touted Larry Ellison, made bullish comments,
or non-bearish comments rather, in an interview on CNBC
last Thursday, more or less saying that the company would
meet estimates and was seeing a drastic improvement in its
business. Oracle reported revenues of $3.2 billion, and
beat estimates by a penny with a profit of $0.15 per share
in the latest quarter. Oracle closed at $14.84, down $0.16,
but was seen bid at $15.41 in the after market.

Chart of ORCL

For the day, The Dow Jones Industrial Average (INDU) tacked
on 21 points, or 0.2 percent, ending at 10,645. The Nasdaq
Composite (COMPX) lost 39 points, or 1.96 percent, to 1,988
and the Nasdaq 100 Index (NDX.X) slid 35 points, or 2.1
percent, to 1,666. The S&P 500 (SPX.X) shed 5.9 points or
0.49%, settling at 1208, while the Russell 2000 (RUT.X)
dropped 4.5 points or 0.9% to 490.54. Volume was less than
confirming on any of the major indexes, coming in at 1.1
billion shares changing hands on the NYSE and 1.5 billion
on the Nasdaq.

In the bond pits, traders continued to bid up the price of
shorter dated maturities as the odds for a wider than
originally expected rate cut by the FOMC next week continue
to rise. Last week's tame inflation data coupled with a
still weakening employment and industrial production
picture could give the Fed the "all green" to cut rates by
50 basis points at its meeting June 26-27. A light economic
calendar this week will likely cap gains achieved in the
credit markets, though continued selling in equities could
result in a flight to safety, furthering profits. Two-year
notes, among the securities most sensitive to overnight
rates set by the Fed, gained 1/32 to 100 17/32. Yields fell
2 basis points to 3.95 percent, the lowest since October
1998. Five-year notes lost 1/32 to 99 20/32, pushing yields
up 1 basis point to 4.71 percent.

Looking at the technical snapshot for the US major markets,
it could be better. As was mentioned in this weekend's
wrap, the closing below the 200-dma by the INDU is the most
daunting for traders, although some may find solace in the
fact a settlement above this key mark was achieved Monday.
Volume lightened up, giving little confirmation of the
bounce off of 10,611, and providing reason to be
suspicious. Internals were mixed as well, further clouding
one's ability to make a direction call for the INDU near-
term. For the record, new 52-week highs beat new 52-week
lows by a measure of nine to six at the NYSE. Decliners
beat advancers by a margin of 17 to 13 and declining volume
was decidedly higher than advancing volume, finishing at
6829 million shares to 409 million.

Chart of the DOW

Support is likely to come into play in the DJIA near the
10,450-10,500-range, while a closing north of the
10,785/50-dma point would be a signal that the bulls have
reaffirmed control.

As for the COMPX, the gap still needs to be filled from
4/17-4/18 (1923-2005), and will likely occur in the near
term. An immediate floor is seen at 1900, but a breaching
of this point could spell a return to the lows, as
disturbing as that sounds.

Chart of the COMPX

A fulfilling of the head and shoulders pattern on the daily
chart is playing out to a tee, and unless bulls step up to
the plate around 1900, trouble with a capital T is coming
to town. As for my humble opinion, as bearish as it looks,
I sincerely doubt a return to the lows occurs. Several
factors are involved with this decision, not the least of
which is the aggressive rate reductions by the FOMC, with
still more in the pipeline. I actually feel that the Fed
will have to raise rates in the 2nd quarter of 2002,
probably as the market is just getting its footing.
Secondly, we are now at the bottom of a well defined
trading range, and much of the bad news from tech has been
heard, although there will be surely a bombshell here and
there in the next 5-7 days. The point is this: With 2000
being the floor for the COMPX since mid-April, coupled with
the fact that end of quarter fund selling--capturing gains
seen from 4/15--5/22--the downturn is likely coming to an
end, an argument can be made by institutions. Decent
rewards may be in the cards going long some stock in here.

Wrapping Up and Looking Forward

While a valid argument can be made to purchase some stock
at current levels, only those with some history in the
market would tell you to get long much with the exception
of financials and deep cyclicals, which by all measures
should outperform the broader market in a declining
interest rate environment. Despite bonds rallying of late,
the underlying story from significant players in the credit
markets is that the Fed is very near the end of their rate
cutting cycle, unless we are to sink into a long, deep
recession. Few believe this to be the case, but Japan, of
course, felt the same way a few years back.

Chart of the ARMS 10-Day

Look for technology to trade in a tight range in the next
few sessions, although short-term indicators such as the
10-day ARMS index indicate very oversold conditions,
allowing for a higher surge at a moments notice. Sometimes
you have to ignore the crowd, picking up the baby thrown
out with the bath water. This feels like one of those
times, especially with Alan and the boys reloading.

Derek E. Baltimore
Contributing Editor

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Definition of the Day

Sentiment Indicators

This measures the bullish or bearish mentality of investors. Many
technical analysts look at these indicators as contrary
indicators on the belief the majority opinion is usually wrong.

For the complete definition, please go to:

Monday's Split Announcements


Tuesday's Expirations by Payable Date

Trading Split-Adjusted June 19

FuelCell Energy (FCEL) splits 2:1

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===================== Plays

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Play-of-the-Day is our number one play recommendation for the
FOLLOWING trading day.

You will see:
Stock Symbol, Company Name, Closing Price, Change for the Week.
Following the play you will find: Picked at Date and Change Since

BoD = Board of Directors meeting
ADV = Average Daily Volume
dma = daily moving average

At the 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.

Play of the Day (For Tuesday)
Monday, June 18, 2001

LOW | Lowes Companies $74.55 +2.17

Sunday's Comment:

Lowes continued to slide lower on Friday, as the stock lost $0.55
to $72.38. The stock is right on the edge of starting to worry
us. It is sitting right above its 20-dma of $71.61 and if it
breaks down through this level next week, it will more than
likely test support at $70. In addition, volume has been
accelerating as the stock has been moving lower, another sign
that sellers may be gaining the upper hand. Traders who might be
interested in getting into LOW should wait until the stock can
close above resistance of $74 on volume of at least 3.5 million
shares before committing capital to the home improvement

Monday's Update:

Lowes broke through resistance at $74 on Monday, but did so on
only 2.6 million shares.  The fact that Lowes closed above $74 is
a great sign.  However, we will watch to see that volume picks up
going forward into Tuesday. That being said Monday's move may be
the beginnings a split-run into the company's 6/29 payable date.
We are encouraged by the fact that the S&P Retail Index (RLX.X)
also performed well on the day, moving higher by 10.44 points to
878.22.  As the Fed meeting next week looms closer, traders might
be playing the retail sector on hopes of a 50-basis point rate
cut.  Turning to LOW's chart, we can see that the stock just
broke out of a small cup and handle formation.  Given the depth
of the cup, the near-term price target becomes $81.  Traders who
might be interested in playing LOW into its 2:1 split, may look
to do so on a bounce off $74 or a break above today's high of
$75.24.  In either instance look for volume to reach at least 1.5
million by midday.

Picked on June 7th @ $74.00
Change Since Picked +0.55
Stop Loss @ $68.00

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