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MARKET > Commentary Tuesday, March 13, 2001
by: Craig Seidler
Assistant Editor

Market Must Be Down

I know this to be true now because Lou Dobbs made his token appearance as the headline guest on the Today show this morning. I usually don't watch morning television other than to catch the jabs Mark Haines lays on Joe Kernen on CNBC but this morning, as I searched for a weather prediction, all the talk shows were headlining the market turbulence.

As Matt Lauer drilled Lou with probing questions (most of which have been asked for almost a year now) I couldn't help but think that this was a message to Joe Public not to panic. Of course things have bad before the NASDAQ dropped below 2000, but it seemed that the highly psychological break down through this level on Monday was enough to put the markets in the headlines again.

This highlighting of the market's malaise may actually serve to provide us with the final sell off that we need to gain some traction here and go higher for at least a while. The weak holders may use this break through 2000 as an excuse to throw in the towel. On the other side of the coin, many long- term investors have targeted the 2000 level as a place to step up to the plate and buy.

No matter what the small investor thinks, in the end it is the institutional buying and selling that moves the market. To that end, it doesn't appear as if the mutual fund managers are positioning themselves for a turnaround anytime soon.

In a recent survey of mutual fund managers, only 18% of U.S. managers expect a more healthy earnings picture in 2001 and only 10% expect a "V" type recovery in 2001. For the uninitiated, a "V" recovery is one that rockets straight off a bottom. Instead of a "V" recovery, many analysts are now calling for a more prolonged recovery off the bottom or an "L" recovery. I don't know about you, but whatever letter you believe will typify the bottom, I'd just like to see the "recovery" part of the equation come to fruition, and soon!

Today’s Markets

On Tuesday, investors were successful at plugging the holes in the dam that had caused the major indices to leak red all over Wall Street during Monday's session. Buyers finally stepped in after Monday's sell off to scoop up tech bargains.

The NASDAQ (COMPX) rebounded by 91.40, or 4.75% to close back above the important 2000 level at 2014.78. Volume came in at a healthy 2.1 billion shares and advancers beat decliners by 2092 to 1659.

Over in the DOW (INDU) things got off to a slow start but the burners kicked on in the afternoon session to take the old economy average higher. The DOW added 82.55, or 0.81%, to 10290.80. It spent much of the morning in negative territory as money flowed into tech stocks; however, it was boosted by late day buying in General Electric (NYSE:GE), J.P. Morgan (NYSE:JPM) and International Business Machines (NYSE:IBM). The stocks closed up $2.73, $1.91 and $2.90 respectively.

Treasuries took a rest after recent gains as interest once again turned back to equities. The 10-year benchmark bond closed down 11/32 to yield 4.94% and the 30-year note lost 20/32 to yield 5.34%.

We also received some economic news today in the form of the February retail sales figures. Sales for February dipped slightly by 0.2%, but this was more a function of a simultaneously huge upward revision in the January sales figures. Sales in January were revised up to 1.3% from the previously released number of 0.7%. All in all these reports point to a consumer that is still spending and this is good news for an economy that needs the consumer on its side to avoid an extended recession.

Stocks and Sectors on the Move

Most all technology sectors saw a good bounce off extremely oversold levels today. The PHLX Semiconductor Index clawed its way back by 36.13 to close above 600 at 612.51. Some standouts in the sector included KLA-Tencor (NASDAQ:KLAC) up $2.56 to $43.81, Micron Technology (NYSE:MU) up $3.29 to $44.05 and Advanced Micro Devices (NYSE:AMD) up $1.05 to $23.78.

Networking stocks also received a collective group hug from investors today. Stocks in the sector were bid up today on the heels of sizeable losses on Monday. Cisco (NASDAQ:CSCO) recouped $2.56, ending today's session at $21.38. John Chambers spoke today at the Merrill Lynch Global Communications Conference, essentially saying that new orders continue to be soft and that this slowdown would be a two- quarter phenomenon at minimum. But, in a show of confidence in the long-term outlook of the company, Chambers indicated that Cisco would consider reinstating a share buyback program.

Bucking the decidedly upbeat tone on the day were shares of Tyco International (NYSE:TYC). The big conglomerate's shares fell $3.87 to $46.83 after the company announced that it is purchasing finance company, CIT Group (NYSE:CIT), for approximately $9.2 billion in stock. The drop in Tyco shares was due in most part to worries over the dilution stemming from the stock-swap acquisition. Tyco plans to use the CIT's services to provide vendor financing within its other areas of business, including telecommunications, electrical equipment and security systems.

Also flying into the market's headwind today were airline stocks. Delta Airlines (NYSE:DAL) warned of weaker profits, sending most airline stocks into a landing pattern. Delta warned that, due to a weak economy, it would lose $0.70- $0.90/share instead of the expected profits of $0.46/share. That's like landing at Logan instead of Laguardia! Needless to say the stock took a hit. DAL closed off $1.64, or 3.81%, to $41.46. United Airlines (NYSE:U) followed suit, falling $1.10, or 3.3%, to $32.20 and United Airlines (NYSE:UAL) descended by $1.64, or 4.28%, landing at $36.72.

Looking Forward, Always Forward

Wednesday brings with it the January Business Inventory report. Although the business inventory report is not usually market moving, as we get closer to the March 20th Fed meeting, all economic reports take on added weight. January business inventories are seen coming in unchanged from December's levels.

The real test going forward is to see whether the DOW and NASDAQ can rally together or if one has to suffer at the expense of the other. Recently, the NASDAQ appears to have started to drag down even the old economy stocks. We need to see evidence of this dwindle, since along with the retail investor losing confidence, if we get into an irrational market where even valuations go out the door, then we are in trouble.

While the market is still in repair mode and while earnings warnings still are a real threat, traders should still be in "tread lightly" mode. This means going into trades with less than your normal position and closely monitoring sectors for hints as to where the money is flowing.

Trade Smart and Keep Stops In Place

Craig Seidler
Assistant Editor


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