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MARKET > Commentary Tuesday, April 03, 2001
by: Craig Seidler
Assistant Editor

Baseball Is Back

While baseball fans started flooding ballparks around the country to watch their favorite players swing for the fences, the market was doing its best not to strike out. But strike out is exactly what the market did today. The curveball thrown by the software and networking sectors yesterday was too much for the market to handle. The scoreboard at the end of the day tells the whole story, DOW down 292.22 and NASDAQ down 109.97.

It was more earnings warnings and news of job cuts that had the market swinging at balls in the dirt today. Ariba (NASDAQ:ARBA) started the downturn with news that it would come in with fiscal second-quarter earnings that will be half of what analysts were expecting. On top of that, it is to lay off 2,100 employees or a third of its workforce. Ariba is now expected to report a loss of $51 million as opposed to expectations of positive earnings of $12.6 million. In addition, they're calling off their merger with Agile Software (NADAQ:AGIL). Not good. The stock finished down $2.06 at $4.44.

Also chiming in with bad news was communications equipment maker Redback Network (NASDAQ:RBAK). The company told investors to expect earnings in the neighborhood of a negative $0.15/share compared with previous estimates of $0.04/share. The requisite downgrades followed the announcement and served to put RBAK back at new lows. The stock finished off $1.93 to finish at $9.77.

Will we get to a point where earnings warnings no longer upset the applecart? Of course we will, but it will take more earnings visibility on the part of corporations that will enable them to honestly say that business may be improving. The six-month market discounting mechanism has been probing into the nether reaches of the fourth quarter only to come back from the future with a big fat question mark. Investors don't buy stocks on a question mark; thus, the other shoe continues to drop.

Today's Markets

As already mentioned, it was more of the same today. Buyers stepped out of the way and sellers turned up the heat as the major indices took a beating.

The NASDAQ (COMPX) fell 109.97, or 6.17% to close at 1673. Volume was heavy with 2.5 billion shares changing hands. Confirming the overall drubbing, declining issues beat out advancers 2983 to 799.

The DOW (INDU) stumbled by 292.22, or 2.99% to finish the rocky session at 9485.71. There were precious few areas to hide from today's carnage. Sellers who just wanted out at any price occupied the regular hiding areas. Tobacco, drugs and healthcare stocks all faltered.

The only ones smiling at the end of the day were those investors that stuck to bonds. The 10-year benchmark bond added 9/32 to yield 4.935% and the 30-year note put on 1/4 to yield 5.47%.

In economic news, new factory orders placed with manufacturers dropped 0.4%, which was worse than expectations of a 0.2% slowing. This data continues to highlight a manufacturing sector that is in a recession and that is having a hard time getting rid of inventory.

Stocks and Sectors on the Move

No amount of coaxing could get buyers out of their low yielding money market accounts today. Even after Salomon Smith Barney raised its equity weighting to 70% from 65% and gave the all clear to dive back into tech, investors didn't budge.

It's tough times right now. Even the early-cycle tech companies (the ones that take advantage of an upswing in consumer purchases of PC's and other high tech products) faltered today and fell back through chart support levels. Dell Computer (NASDAQ:DELL) continued its three-day slide by falling another $0.63 to $23.44 and Apple (NASDAQ:AAPL) plummeted $1.35 to $20.24.

In other early-cycle tech wrecks, Advanced Micro Devices (NYSE:AMD), which had broken out just seven trading sessions ago, fell back $1.82 to $23.68. Joining AMD were shares of fellow chipmaker Xilinx (NASDAQ:XLNX), which notched a new 52-week low at $31.44 after falling $1.69 on the day.

The biggest disaster of the day, however, had to be the internet infrastructure company Inktomi (NASDAQ:INKT). The company lost 55% of its value in hectic trade that sent the stock down $3.43 to $2.79. This was after they told investors that it would be cutting 25% of its workforce to weather an economic environment that is worse than they expected. The company also now expects a loss of $0.23-$0.25/share for its second quarter, down from analyst estimates of a loss of $0.04/share.

Other than the obvious harsh reaction to the bad news, I am amazed by the shear magnitude of how much the analysts have missed the downturns to these companies. These are widely held and widely covered companies that either didn't see the economic downturn coming, or were effected all of a sudden by the slack in demand.

These warnings beg the question, "Are these downward surprises a function of overly optimistic analysts or did this halt in corporate spending really sneak up on the pros that fast?" If the answer is the latter, I just hope that the consumer holds his own, because the carpet could be ripped out just as fast under the retail stocks that have been rising on anticipations of a turnaround at the cash registers.

Having said that, hopes in the retail sector were stoked by earnings out of Best Buy (NYSE:BBY) that beat Street expectations. BBY posted fourth quarter earnings of $0.89/share, walloping estimates of $0.82/share. Going forward the company indicated that it sees same store sales increasing moderately in the coming year, although it did note that it expects consumer sentiment to remain soft.

Looking Forward, Always Forward

On Wednesday, investors get a peek at the March NAPM non- manufacturing number and the March vehicle sales figures. Both are expected to weaken. The NAPM is expected to come in at %51.50, down from February's reading of %51.70, and vehicle sales are expected to come in at 14 million, down from the previous reading of 17.5 million. The vehicle sales number will indirectly give us a read on consumer confidence, as folks don't buy cars unless they feel at least somewhat confident in their future household earnings prospects.

Looking at how much tech shares have come down from even just last month, you have to wonder if CEOs feel that now is a good time to announce their firm's expected upcoming short falls. More warnings would almost certainly cause another slide in tech share prices, but you'd have to think that current prices have much of this expected bad news already baked into them, cushioning any further slides.

Speaking of further slides, don't look now, but we appear to be heading for lows on the NASDAQ that have not been seen since October of 1998.

Bottom line is that the market tends to move quickly to extremes before mellowing at some median range. I think we are in for more downside, but I also expect that any move back to a median range will be just as swift as the elevator ride down (sans cable) on which we have been stuck. Third floor, trashed semiconductor, software and networking stocks, everybody off!!

Keep Stops In Place and Play By Your Rules

Craig Seidler
Assistant Editor
www.SplitTrader.com

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.


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

Rance Masheck, President, SpreadTrader.com
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, PremierMarkets.com
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, OptionInvestor.com
Austin Passamonte, Editor, IndexSkybox.com
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, ArmsInsider.com
Increase your profit potential with Equivolume Charting, volume adjusted moving averages and the TRIN

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

Buzz Lynn, Contributing Editor, IndexSkybox.com
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.

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How to Profit from Option Pricing, Market Making and Volatility

Rance Masheck, President, SpreadTrader.com
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, IndexSkybox.com
Slump Busting. Are you on a losing streak? Learn what you need to do to BUST out and break the pattern.

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

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

Austin Passamonte, Editor, IndexSkybox.com
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, OptionInvestor.com & IntradayTrader.com
Psychology of trading and the Importance of the top down approach to trading.

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

Derek Baltimore, Co-Editor, IntradayTrader.com
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.

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