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MARKET > Commentary Monday, April 02, 2001
by: Jim Booth
Research Analyst

New Quarter, More of the Same?

Spring is here. Birds are chirping and our the boys of summer took the field today. However, the spring promise of beautiful days to come was put on hold as the winter doldrums extended into the second quarter today. Clearly, there remains a decided lack of confidence in the stock market as we head into the next earnings season.

The positive momentum that carried us through the end of last week was severely damaged today by bad news from the pharmaceutical sector. Schering-Plough (NYSE:SGP) and generic drug companies American Home Products (NYSE:AHP) and Upsher-Smith Laboratories were sued by the Federal Trade Commission today which charged that the drug companies violated Anti-trust laws by conspiring to keep generic drugs off the market.

The drug sector had been a relative safe harbor for investors but if these accusations have merit, more drug companies could be scrutinized for similar violations. The Pharmaceutical Index (DRG) dropped 10.24 points to 374.87. SGP lost $1.07 to $35.46 and AHP lost $2.25 to $56.50.

Meanwhile, American Express (NYSE:AXP) lost $1.59 to $39.71 following a warning that first quarter profits should be about 39 cents. Previous estimates were calling for profits of 51 cents. The company cited diminishing revenues from its Financial Advisors Group as well as a deteriorating economy for the shortfall.

Honestly, though, the Dow Jones Industrials (INDU) actually held up pretty well considering all of the bad news. For the day, the INDU lost 100.75 and closed at 9778.03. The INDU had traded as low as 9,705.07.

The broader NYSE saw decent volume of 1.2 billion shares. Decliners trumped winners 19 to 12.

The NASDAQ (COMPX) dove to a new 29-month low following another ugly day for technology stocks. Weakness was pronounced in the semiconductor sector, as the (SOX) fell 41.90 points to 503.15. For the record, the NASDAQ lost 57.29 points and closed at 1782.97. Volume was pretty solid for a Monday and came in at 1.83 billion shares. Losers crushed winners by a 27 to 10 ratio.

The NASDAQ's most active list saw declines from Dell Computer (NASDAQ:DELL), Applied Materials (NASDAQ:AMAT), JDS Uniphase, (NASDQAQ:JDSU) and Qualcomm (NASDAQ:QCOM).

Software company Acxiom (NASDAQ:ACXM) was the disaster du jour, as it fell $9.38 to $11.50 following an earnings warning. The company said that fourth-quarter earnings are likely to fall into the 10 to 12 cent range while previous estimates were calling for profits of 36 cents a share.

As for the broader and smaller markets, the S&P 500 (SPX) dropped 14.50 to 1145.85 while the Russell 2000 (RUT), which had been somewhat stronger than the big stock indices, collapsed 10.77 to 439.76.

As for the bond arena, Treasury prices did not respond favorably to today's economic news. The National Association of Purchasing Management Index rose to 43.1% in March. Estimates were calling for a level of 42.5%. The numbers indicate the beginnings of an economic recovery, which may hamper the Fed's inclination to continue easing. The 10-year Treasury note dropped 14/32 to a yield of 4.97% and the 30-year government bond fell 17/32 to a yield of 5.48%.

There appears to be no rest for the weary in the after hours, especially among NASDAQ traders. Software firm Ariba (NASDAQ:ARBA) released disturbing news that its second quarter earnings will be well below expectations and as a result the Company will slash a third of its workforce, or 700 jobs. ARBA is pre-releasing losses of about 20 cents while previous estimates were looking for a loss of about 5 cents. ARBA finished the regular trading session down $1.41 to $6.50 and is down more in after hours trading. This former high-flyer has a 52-week high of $173.50.

Another former high-flyer of the software world, Inktomi (NASDAQ:INKT), also announced that it will slash 25% of its workforce as its business continues to crumble. The company expects a loss of 23 to 25 cents and analysts had been expecting a loss of 4 cents. INKT closed at $6.22 during regular trading hours but is trading as low as $4.60 in after hours. Inktomi has a 52-week high of $195.12.

There are obviously continuing problems in the networking and fiber-optic equipment world, as Redback Networks (NASDAQ:RBAK) also decided to cut its workforce. Redback will eliminate 150 jobs, or 12 percent of its workforce. The company will have to take a restructuring charge of $27 million over the next couple of quarters. Redback closed the day at $11.70 and is trading down to $10.15 in after hours trading.

With so many former high-flyers now approaching zero, one has to ask the question, when will it all end? It is important to point out that when the Internet high-flyers starting falling into single digits many people started trying to pick a bottom. Most of them are very sorry, as many of these Internet stocks are either in bankruptcy or close to it.

If you have to bottom fish in the technology sector it would behoove you to stick with the big boys that are extremely unlikely to go belly up. Dell Computer (NASDAQ:DELL), IBM (NYSE:IBM), Sun Microsystems (NASDAQ;SUNW), Microsoft (NASDAQ:MSFT), Cisco Systems (NASDAQ:CSCO), Oracle (NASDAQ:ORCL), Corning (NYSE:GLW), Intel (NASDAQ:INTC) and EMC Corp (NYSE:EMC) all come to mind.

It would also probably be a good idea to avoid buying the shares of any company that is still not profitable. It is becoming increasingly unlikely that these companies will ever show a profit. If they cannot make money when the economy is flying, how are they going to make money in a recession? At some point these companies will likely go broke, especially since there is clearly no money available in the secondary market to keep them afloat.

NASDAQ traders that followed my advice in last week's write-up could have made modest profits once the 2000 resistance held and the Index started dropping. Until the longer term trend improves, traders will simply have to take quick profits. The short term technical picture for the NASDAQ is suggesting that we are near a bottom. The RSI is indicating a very oversold condition and the MACD is trying to put in a bottom. However, momentum is a powerful force, and we could see a quick drop to 1,500 if we get some more bad news. If this occurs, it would likely present an excellent buying opportunity. Otherwise, be cautious about getting caught up in short rallies.

The technical picture for the Dow Jones Industrials looks to be improving a bit. Some money seems to sloshing back and forth between drugs, cyclicals and some financials. There generally has not been much progress, but we could see a decent rally if the Dow can climb back over the 10,000 resistance. Be careful with long Dow positions if the average drops back below 9550 because it could spark a quick retest of 9000.

Good luck and may all of trades be winning ones!

Jim Booth
Research Analyst

Editors Note:

If you have not yet reserved a seat at the April Trading Expo in Denver this week, then you are missing out on the opportunity of a lifetime. This group of speakers will never be offered again. Over a million investors have read their books and newsletters and heard them speak individually. Next weekend you can hear them all in one place with over 50 hours of in-depth options and stock trading education. Take a couple days off from the markets and learn how to win more and lose less.

3rd Annual Trading Expo
April 5th-9th, Denver Colorado

OptionInvestor is proud to announce our third annual Spring option workshop in Denver Colorado. This power packed five-day event is structured to fully educate you on advanced option strategies and will make you a better and more profitable trader.

Jeff Bailey, Editor,
Learn the basics of Point and Figure Charting while analyzing how supply and demand on an institutional level affects the markets and the stocks you want to trade.

Mark Skousen, Ph.D., Editor, FORECASTS & STRATEGIES
The Global Economy and its Impact on Us. Learn from a professional economist who turns his understanding of economics into highly valuable investing advice.

Harry Browne, Author of Fail-Safe Investing
Sixteen Golden Rules of Failsafe Investing. A powerful session that translates the essence of the book into guiding principles.

Jim Brown, Founder,
Austin Passamonte, Editor,
Jeff Bailey, Editor,
Preparing for Battle. This is a very popular session where multiple speakers team together offering insights on: planning your trades and the combination of research, market factors, and choosing your hot list.

Tom DeMark, Author of three books on DayTrading Options
Day Trading Options. An extremely popular subject taught by one of the world's foremost authorities on chart analysis. Tom wrote the book on day trading options, literally.

Steve Nison, Author, Japanese Candlestick Charting Techniques
Candlestick Charting. Is that a doji or an evening star formation? How can this benefit your trading success? Candlestick chart analysis is another hot topic that traders are always eager to learn. Nison is internationally recognized as the "Father of Candlesticks" and has written two books on the subject.

Austin Passamonte, Editor,
Buzz Lynn, Contributing Editor,
Beating the Market with Indexes. This is another tag team event where you'll hear from two of our staff from as they discuss topics like: Don't Pick Stocks, Pick Markets; and Market Timing Equals Sector Profits.

Rance Masheck, President,
Calendar Spreads & Bull Call Spreads. Some of the first strategies a beginner will encounter in spread trading are these two spreads. Both simple and effective they continue to draw experienced traders over and over again.

Mark Skousen, Ph.D., Editor, FORECASTS & STRATEGIES
Scrooge Investing - The Best Bargains in Beaten Down Stocks for 2001. This is a great topic and Mark's background as an economist really offers some new insight into the challenge of choosing your investments.

Jeff Bailey, Editor,
Calculating the Bullish Percent. Applying your new knowledge in Point and Figure charting to decipher how many stocks in a sector are showing buy signals.

Jim Brown, Founder,
Austin Passamonte, Editor,
Pre-Market Analysis. A very popular session where multiple speakers team together offering insights on: Pulling the Trigger, Amateur Hour, and Market Hype.

Dick Arms, Inventor of the Arms Index, Founder,
Increase your profit potential with Equivolume Charting, volume adjusted moving averages and the TRIN

Derek Baltimore, Co-Editor,
Risk Management in a declining Market

Buzz Lynn, Contributing Editor,
Sector Trading with IShares. You may know of DIAMONDS for the Dow Jones, SPDRs for the S&P 500, and the QQQs for the NASDAQ but there is a growing list of IShares and HOLDRS that offer great trading potential.

Jon Najarian, Founder, Mercury Trading, Floor-Trader CBOE
Successful Option Trading. "Doctor J" is the name and options is the game. Jon has twenty years of experience as a professional option trader. His firm makes markets in over 90 high-tech and biotech stocks and trades up to 40,000 options per day.

Matt Russ, Editor,
How to Profit from Option Pricing, Market Making and Volatility

Rance Masheck, President,
Straddles. An excellent strategy for today's markets. Traders should be very familiar with the proper execution of a straddle to benefit from expected volatility.

Jeff Wright, Preferred Trade
Understanding Option Basics and the roll of an options floor trader.

Buzz Lynn, Contributing Editor,
Slump Busting. Are you on a losing streak? Learn what you need to do to BUST out and break the pattern.

Jim Brown, Founder,
Big Cap Strategies, Naked Puts, Zero Risk Trading, Making Dollars not Dimes.

Jim Crimmins, President,
Tax Strategies for the Active Trader. It's that time of year again and Uncle Sam wants a cut of your trading profits. Let Jim offer some advice on how traders should handle such taxing issues.

Molly Evans, Writer/Trader, IndexSkybox &
The Organized Trader.

Rance Masheck, President,
Five Point Star Trader System. Learn what you need to know about a stock before making a decision to trade.

Austin Passamonte, Editor,
Swing Trading & Day Trading Index Options. Many consider Index option trading to be the pinnacle of equity options. Learn more about the do's and don'ts for Index Option trading.

Eric Utley, &
Psychology of trading and the Importance of the top down approach to trading.

Buzz Lynn, Contributing Editor,
Trading with Qcharts. Learn how to properly set up, use, and deploy the best features and techniques.

Derek Baltimore, Co-Editor,
Exit Strategies, knowing when to quit

Tim Taylor - Preferred Trade
Using Direct Access Trading Platforms

Each topic will be covered in 1-2 hr general sessions taught by one or more OptionInvestor staff and presented on three giant screens. In the evening we will offer five of our popular chalk talk sessions for that personal question and answer interaction.

Unlike other seminars with only two or three instructors, you will get in-depth knowledge from many different instructors who are experts in their field.

The cost for the four-day workshop, April 6th to 9th is only $2995 (spouse only $1495). This includes breakfast, lunch and supper each day. All course materials, a CD of all the presentations and a professional video package of the entire seminar so you can review the material at home in the comfort of your living room. There is also a $500 discount if you have attended a prior OIN seminar.

This is not a prepackaged presentation that gets repeated over and over with stale information. This is a one-time production and everything is fresh, live and as current as we can make it. The videos will have your real time questions and answers and not some from a prior class. Where else can you get intensive yet personalized options education like this?

Do not delay as seating is very limited.
We guarantee you will not be disappointed!

You can pay for your education one bad trade at a time or you can invest less money one time to learn how to do it right.

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