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MARKET > Commentary Monday, March 26, 2001
by: Jim Booth
Research Analyst

The NYSE Bargain Barn

The sideline cash jumped to the floor of the NYSE today lending further credence to the theory that the triple symbol stocks may have put in a significant bottom last week. Retailers were particularly strong as Wal-Mart (NYSE:WMT) picked up $2.03 to $49.60 while fellow Dow component Home Depot (NYSE:HD) gained $1.68 to $41.35.

Speaking of the Dow, many other solid performances could be found within the Dow Jones Industrials (INDU), which finished the day up 182.75 points and closed at 9687.53. INDU cyclicals also did well, as the value theme dominated the Street. Boeing (NYSE:BA) gained $2.44 to $55.44 and International Paper (NYSE:IP) rallied $1.59 to $35.65.

Unfortunately, the rally did not extend to the NASDAQ (COMPX), which fell a modest 10.19 to 1918.49. A potential rally of the technology sector was thwarted by more bad news from Cisco Systems (NASDAQ:CSCO) and broad weakness among semiconductors. Cisco's CEO, John Chambers, offered a chilly forecast for the entire economy during an interview with the Financial Times. It is his belief that the economic outlook has continued to deteriorate since Cisco last warned back in January. He further stated that the current slump may continue for "at least another three quarters." Cisco shares dropped another $0.81 and closed at a new 52-week low of $17.88.

The PHLX Semiconductor Index (SOX) slumped 23.65 points and closed at 618.45, thus ending what had been a nice bounce from last week's low of 537.35. The culprit was networking chip manufacturer PMC-Sierra (NASDAQ:PMCS), which offered the latest earnings warning. Citing waning demand and canceled orders, PMCS said it now expects first quarter earnings to be 2 to 3 cents. Previous expectations were calling for profits of 12 cents. The Company also said that it plans to cut approximately 230 jobs. PMCS dropped $1.68 to $32.26.

Another chip maker, Conexant Systems (NASDAQ:CNXT) offered its negative news to also hurt the sector. CNXT warned that it now sees a loss of 35 to 40 cents for the second quarter. Estimates had been looking for a loss of 24 cents. CNXT dropped $0.63 and closed at $10.50.

We are quite proud to report that the Big Board rally extended to the Play List. All seven of our current plays posted gains today. Topping our list was THQ Inc. (NASDAQ:THQI), which soared to a new high of $36.88 and was up $2.38. Smithfield Foods (NYSE:SFD) also established a new high with a close of $36.40 with a gain of $1.63.

Our Play of the Day for Tuesday, Performance Food Group (NASDAQ:PFGC), offered us an excellent entry price of $48.75 and proceeded to trend higher the rest of the day, finishing up $1.13 and closing at $50.63.

The major market indices were generally higher for the day. The S&P 500 (SPX) gained 12.85 to 1152.70. The S&P 100 (OEX) picked up 7.74 to 588.46. Small cap stocks, represented by the Russell 2000 (RUT), rallied 4.11 to 447.38.

Outside of the previously mentioned chip sector, other widely watched groups were generally higher. The PHLX Bank Index (BKX) rallied 15.69 to 822.99. The Dow Jones Utility Index (UTIL) picked up a whopping 15.94 to 367.42 following approved rate increases in California. The Biotechnology Index (BTK) enjoyed a nice bounce with a gain of 15.13 to 459.64.

A takeover of drug company Alza (NYSE:AZA) by Johnson & Johnson (NYSE:JNJ) was rumored all day and was finally confirmed after the close. AZA finished the regular session up $8.70 to $38.75 while JNJ dropped $2.83 to $85.38. Although the takeover is considered to be an important strategic acquisition for JNJ due to the expanded product line it should offer the pharmaceutical giant, perhaps the perception is that JNJ is paying too much. JNJ is dropping another point in after hours trading while AZA remains unchanged.

In other after hours news, Manugistics (NASDAQ:MANU) is rallying following an earnings release that met analysts estimates of 5 cents of profits for the quarter. The Company stated that it continues to see excellent demand for its products. The positive news could spark a rally among B2B stocks tomorrow. MANU closed the regular session at $26.00, which was down $0.88 for the day. However, MANU appears to be recouping much of that loss in after hours trading.

There is some more bad news for the semiconductor stocks during the after hours session. TranSwitch (NASDAQ:TXCC) is now the latest member of this group to guide quarterly estimates lower. Order cancellations and order push-outs should cause TXCC to report first quarter profits of 9 to 10 cents. Previous estimates were looking for profits of 16 cents. TXCC closed the regular session at $18.88, which was down $0.69. Current after hours trading is showing more declines with the stock trading just below $17.00.

Solid buying on Wall Street caused a slump in Chicago, as bond prices dropped. The 10-year Treasury note slipped 12/32 to a yield of 4.86 percent. The 30-year government bond fell 28/32 to 5.365 percent.

Tomorrow's early action could easily be an extension of today. Semiconductor's may be weak, which should hold back the technology stocks while money flows into the relative safety of cyclical, retail and other stocks that exhibit reasonable growth at a reasonable price.

There are a couple of economic reports slated for tomorrow that should receive a fair amount of attention. Durable Orders are expected to show a 0.5% increase for February. If this number comes in worse than expected it should put more pressure on the Fed to continue easing. Following this report will be the release of the Consumer Confidence numbers after the first half hour of trading. This number will be closely watched to see if people intend to put off purchases due to fears of a slowing economy.

A third up day for the Dow would put some decided pressure on the bears. Although bear markets are typically characterized by quick bounce rallies following the establishment of new lows, it will be important to see if we can get some panic short covering. If the rally fails, it will probably be due to people taking the opportunity to unload positions that they wish they had dumped a couple of weeks ago.

As I have stated in this column before, do not be afraid to be quick with your stops and take profits if you were fortunate enough to get long near last week's lows. Cash is still king in this market.

Technically speaking, the Dow did establish some very important support at last week's spike low of 9047. The Dow continues to love trading around easily recognizable numbers. Today's peak approached 9725. If we can close above 9750 tomorrow with good NYSE volume decidedly over 1 billion shares, we may see a nice retracement all the way back to 10,000 by the end of the week. The last time this average rallied from an extremely oversold condition indicated by the RSI was in October. The subsequent rally lasted 10 days and was good for approximately 1500 points before a period of consolidation.

The NASDAQ (COMPX) is at a critical juncture and the key will be how the 1ndex handles continued bad news. Although the Index has staged a nice rally off its extremely oversold condition according to the RSI, it remains to be seen if investors see any real value among languishing technology stocks. We could easily see the NASDAQ go through a lengthy consolidation between 1750 and 2000 as investors continue to wean themselves from their technology stock addictions. On the plus side, the MACD did just turn positive. The MACD has been a powerful indicator. In the past, this event has led to a nice rally. It remains to be seen if the NASDAQ can shake off the bad news, close above 2000 and gradually move to a test of 2250.

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

Jim Booth
Research Analyst


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