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MARKET > Commentary Monday, March 05, 2001
by: Jim Booth
Research Analyst

Escaping the Cold

It may be March but the bears went back into hibernation for the second consecutive Monday. The threat of an intensifying snowstorm slamming the eastern seaboard kept many market participants at home. Apparently, traders with a bearish slant were more likely to play hooky.

The threat of severe weather resulted in volume failing to break the 1 billion-share barrier for the first time this year on the NYSE. The official tally saw volume come in at 923 million shares traded.

The Dow Industrials (INDU) enjoyed a strong recovery. The INDU closed with a tidy profit of 96.00 points, finishing the day at 10,562.30. Helping to push the INDU higher were shares of AT&T (NYSE:T), which picked up $1.16 to $23.56 and Intel (Nasdaq:INTC), which moved up $1.06 to $30.38.

The Nasdaq Composite Index(COMPX) was also a beneficiary of the lack of bear sightings. The COMPX finished the day with a gain of 25.30 points and closed at 2,142.93. Nasdaq (COMPX) volume was also somewhat light, even though this index is electronically traded from thousands of independent sights -- final volume was 1.49 million shares traded.

Several members of the beleaguered technology sector managed to close higher. Sun Microsystems (Nasdaq:SUNW) picked up $1.31 to $20.94. JDS Uniphase (Nasdaq:JDSU) came back $1.91 to $28.31. Value investors bolstered Dell Computer (Nasdaq:DELL) by $1.38 to $23.44. There was interest in (Nasdaq:AMZN) due to a rumored pending deal with Wal-Mart (NYSE:WMT). AMZN rallied $2.63 to $12.63.

We are happy to report that there were several new 52-week highs established by the denizens of our play list. Baxter International (NYSE:BDX) picked up $1.87 to $95.20, International Game Technologies (NYSE:IGT) hit the jackpot with an increase of $1.94 to $55.78, Lockheed Martin (NYSE:LMT) crept up $0.14 to $38.44 and Priority Healthcare (Nasdaq:PHCC) rallied $1.31 to $43.81.

The broad market indices were mostly higher. The S&P 500 (SPX) gained 7.20 to 1241.40. The Russell 2000 (RUT) brought up the rear with a decline of 1.09 points and closed at 475.79.

The strongest sector was the semiconductors. The PHLX Semiconductor Index (SOX) closed with a gain of 30.15 and finished the day at 612.35. Amazingly, the SOX remains 745 points below its 52-week high.

The Biotechnology Index (BTK) was among the weaker sector indices, as it posted a decline of 9.92 points and closed at 572.82.

The weather did not keep the bears away from the bond pits in Chicago. Bond traders, who have already priced in a March 20th rate cut of 50-basis points, are marking time and taking small profits. The 10-year Treasury note slipped 9/32 to a current yield of 4.985% and the 30-year government bond lost 6/32 and now sports a yield of 5.375%.

It looks like the most important news of the day has come after the bell. Several technology stocks are warning investors that earnings and/or revenues will miss expectations.

New Focus (Nasdaq:NUFO), a manufacturer of fiber optic products, said it is being hurt by order cancellations. It now expects 2001 revenues to come in around $170 to $190 million. These numbers are substantially below previous guidance for revenues in the $240 million range. NUFO finished the regular session with a gain of $0.94 to $21.25. After hour trading is showing a decline of $4.94 to $16.31.

Xilinx (Nasdaq:XLNX), a leader in the field of programmable logic devices (PLDs), claimed that February was weaker than expected. The Company now believes it will see sequential revenue declines approaching 15 percent for the month of March. XLNX is holding up pretty well so far in after hours trading. After finishing the regular session up $0.75 and closing at $43.25, the stock is only giving back $0.25 of those gains. Keep an eye out for possible analyst's rating changes tomorrow.

REMEC (Nasdaq:REMC), a leader in wireless communications equipment, badly missed consensus estimates for its fourth quarter profits after the close. The Company reported profits of only 3 pennies while estimates were looking for profits of 12 pennies. REMC finished the regular session at $9.00 and after hour indications are for a further decline of up to a point.

The big question for technology traders tomorrow is whether all of these disappointments are already priced into the market. We have seen several technology stocks hold their prices after warning about declining profits in recent weeks. It is becoming increasingly apparent that the bad news is already priced into the market, especially among the PHLX Semiconductor Index (SOX) components. A lack of selling creates a path of least resistance to the upside for these stocks. However, some good news is desperately needed for a substantial rally to ensue.

The Dow Industrials appears to at least be stabilizing in the bottom half of a trading range that began in November. Perhaps the best thing we can say about this Index is that support has been firmly established at 10,240. If today's bounce is going to become anything more substantial, the INDU will have to close above the 50-DMA of 10,702. It would be preferable if a rally was accompanied by good volume approaching 2 billion shares. Manhattan is preparing for up to a foot of snow over the next 48 hours, so we are not expecting any substantial volume until at least the end of the week. The MACD, which has been in decline for the past several trading sessions, started to turn up today. If this technical indicator can trigger a buy signal later this week, we could see a more substantial rally into the March 20th FOMC meeting.

The Nasdaq (COMPX) is characterized by some selective buying among downtrodden technology stocks. It is likely that this buying is being done by investors with a very long term focus. These people are not going to quibble about finding an absolute bottom for Cisco Systems (Nasdaq:CSCO), Intel (Nasdaq:INTC) and Dell Computer (Nasdaq:DELL).

The Nasdaq is sitting at an extremely oversold level, according to the Relative Strength Indicator (RSI). This fact is likely to encourage some light buying. The MACD is attempting to slow its decent and may be even trying to turn up and eventually trigger a buy signal. The Nasdaq has shown some ability to shake off bad news. Therefore, it would take some really horrible news to drive the Index below the 2000 support. Just remember, when trying to trade bounces, it is critically important to stay disciplined about your stops.

If you are looking for trading opportunities, you may want to take a look at the list of Splittrader plays that are making new highs. These stocks are among the very few that momentum traders appear to be interested in.

Good Luck! And may all of trades be winning ones!

Jim Booth
Research Analyst


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