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MARKET > Commentary Wednesday, April 04, 2001
by: S.P. Brown

Stocks Go On A Wild Ride

Few, though, took a wilder ride than Lucent Technologies (NYSE:LU). The beleaguered and blooded telecom equipment provider was besieged by rumors (supposedly started in Europe) that it was facing bankruptcy. Let's face it, bankruptcy is generally perceived, and rightfully so, as an economic negative by the investing public, so it should come as no surprise that Lucent was thoroughly routed today.

In fact, during one point in the session, the telecom giant was down 30 percent, fetching a paltry $5.50 a share. But soon after hitting its nadir, the company started releasing press releases saying it just ain't so, and its stock eventually recovered to trade over $7.00. Unfortunately for Lucent, though, sellers once again took control and the company's shares sold-off through the afternoon hours, forcing it down to an eventual close of $6.78.

Of course, as many long-term Lucent shareholders know, a double- digit sell-off isn't out of the ordinary. In fact, there have been so many over the past 28 months that the company has seen more than $230 of its market value vanish. Adding insult to injury, Lucent's stock is now trading below its 1996 IPO offering price after having once tipped the beams at $84 a share.

Speaking of IPOs, another company trading below its IPO price is Lucent progeny Agere Systems (NYSE:AGRa). The optical component maker's shares fell $0.17 to $4.77, meaning its stock is down 21 percent since its IPO of 600 million shares at $6 each last week.

Still, if it weren't for Agere, Lucent would be in deeper you- know-what than it already is because through Agere Lucent was able to secure $4 billion in credit lines and receive $2.5 billion from the Agere IPO, all of which have helped to make Lucent's whopping $8.1 billion debt load more manageable.

Lucent & Co.'s woes weighted heavily on the market through the first hour of trading, as did Tuesday's flurry of high-tech earnings warnings. Rational Software (Nasdaq:RATL), Kana Communications (Nasdaq:KANA), Clarus (Nasdaq:CLRS) and Sybase (Nasdaq:SYBS) all warned late yesterday that there latest round of quarterly earnings were going to be nothing to celebrate.

Within the first hour of trading it appeared as if all the major market indices were going down for the count again. However, spirits were briefly lifted while Federal Reserve Chairman Alan Greenspan gave the U.S. Senate a discourse on the benefits of free trade. Market participants were obviously bidding up shares in the faint hope the Fed Chairman would let slip his goal for short-term interests. But once it became clear that Mr. G wasn't going to commit such an egregious faux pas, traders went back to doing what they do best -- sell.

And as we are all well-aware, the favorite market to sell is the Nasdaq. To that end, the Nasdaq Composite Index (COMPX) lost 34.20 points, or 2.04 percent, to 1,638.80, suffering its third straight losing session and hitting its lowest close since mid- October 1998. Eighteen of the 25 most heavily traded stocks in the COMPX touched new 52-week lows as wary investors took even more money off the table ahead of the first-quarter reporting season.

The selling was particularly brisk in the COMPX's semiconductor components. Intel (Nasdaq:INTC) lost $2.38 to $22.63, hitting its lowest close since late October 1998. Meanwhile, Applied Micro Circuits (Nasdaq:AMCC) dumped $1.25 to $11.31 and Applied Materials (AMAT) jettisoned $2.31 to $37.81. All told, this week's pounding in the chip sector has caused the PHLX Semiconductor Index (SOX) to shed nearly 14 percent of its value, putting the oft-watched index at levels not seen mid-1999.

Many traders are looking for the chips to lead the tech issues out of their doldrums, as these stocks are considered the cyclicals of the high-tech world. Obviously, based on recent performance, the chips are not portending a tech recovery anytime soon.

Fortunately, traders seeking sanctuary today could find it in the Old Economy. The Dow Jones Industrial Average (INDU) gained 29.71 points, or 0.31 percent, to 9,515.42. However, the ride was far from smooth. Early in the session the blue-chip barometer dipped below the 9,378.38 level, putting the average in bear territory. The INDU then jumped more than 1 percent, as some trader began foraging for bargains produced after Tuesday's sharp sell-off.

Ironically, most of these bargains were found in the INDU's cyclicals. Caterpillar (NYSE:CAT), General Motors (NYSE:GM), DuPont (NYSE:DD) and International Paper (NYSE:IP) all experienced robust gains.

Cyclicals fortunes tend to rise and fall with the economy, which may seem counterintuitive since the economy has been dropping like a stone while the cyclicals have been inching higher. Keep in mind, though, that the market is a forward-looking mechanism, so its natural that the cyclicals (I'm referring to real cyclicals not the chip cyclicals I mentioned earlier) should rise ahead of the overall market recovery. The cyclicals have done a decent job of holding their value while the rest of the market has been selling off over the past few months. I think if the cyclicals can continue to avoid a grinding sell- off, the broader markets could soon find a bottom.

To that end, it's important that the Morgan Stanley Cyclical Index (CYX) maintain support near its 60 percent retracement from its March 2001 high to its October 2000 low. Should this support level breakdown, however, it's possible that the cyclicals could start circling the drain with the rest of the market, which, in turn, could mean more traders will head for the sideline.

Shifting to the broader market, the S&P 500 (SPX) continued its slide, closing down 3.21 points, or 0.29 percent, to 1,103.25, its lowest close of the past 29 months. Nevertheless, traders in this venerated index's issues can take some comfort. Goldman Sachs stock market strategist Abby Joseph Cohen was quoted by Reuters as saying she still believes stocks are undervalued as measured by the SPX's basket of stocks.

In Splittrader news, our Current Play list continues to weather the selling storm admirably. Universal Healthcare (NYSE:UHS), Kimberly-Clark (NYSE:KMB), McCormick & Co. (NYSE:MKC) and Equitable Resources (NYSE:EQT) all finished the day with strong gains. Moreover, our entire portfolio is up this week while most of the major market indices are down.

On the economic front, the NAPM Non-manufacturing business activity declined in March to 50.3 percent from last month's reading of 51.7 percent. This figure is below the consensus estimate of 51.5 percent and indicates weaker than expected growth in the non-manufacturing sector, which is cause for some concern.

Another cause for concern is the never-ending slide in the COMPX. As it now stands, the tech-heavy index doesn't have any immediate support until its October 1998 lows of 1,400, which is a 15 percent discount from current price levels. In other words, the worst may not be over.

Still, we can take some solace that the INDU has been able to withstand the siren call of the bear market, even if it has been trading sideways for the past two-years.

With that said, I still believe that the safest way to play this market is through conservative issues that are maintaining an uptrend (which is why you'll find mostly three-letter issues on our Current Play list). At this point, I'm not sure that its safe to play the market short anymore. Too many issues have fallen to levels that I think no longer justify the risk to gain the expected reward.

So, we are going to keep doing what we've been for the past six months, and that's keep the play picking conservative and the stop-losses tight.

S.P. Brown

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,
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 &
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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.

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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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