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MARKET > Commentary Thursday, April 05, 2001
by: Craig Seidler
Assistant Editor

Dell Says All Is Swell

Michael Dell's announcement that his computer company would likely meet its first-quarter EPS and sales estimates was all that was needed to jump start the averages today. It was off to the races as investors literally piled money back into tech stocks.

Dell Computer (NASDAQ:DELL) reaffirmed that it was in line to meet earnings estimates of $0.17/share and sales of $8 billion. Given the market's reaction to this news, you would have thought that making these numbers was a phenomenal feat worth putting Mr. Dell's face on the cover of Fortune magazine again.

Don't get me wrong, the news was indeed good and was exactly what the market craved, however, a closer look at the situation puts today's market rally of biblical proportions into perspective. While the computer company said it is line to meet the EPS estimates, those estimates have already been lowered. So Dell is going to jump over a lowered bar. In addition, Michael Dell himself said that he sees additional risks in the last four weeks of the quarter and he will not speculate what business will be like beyond the first-quarter. In other words, no visibility and after all the hoopla, there is a risk they may not meet the numbers anyway. By the way, DELL finished the day up $3.06 at $25.19.

I see Dell's success as a direct result of their heavy investment in their unique business model. As everyone knows, Dell makes computers as they are purchased instead of putting pre-made models into inventory. This is the ideal mode of operation for today's uncertain environment and has obviously paid off for the Round Rock, Texas company. However, instead of just Dell rallying today, it was all of techland that joined the party, even those companies that still have significant inventory and sales issues.

So the question remains, "Did today's rally attract real buying or was it just a wave of massive short-covering sparked by one success story amid volumes of tales of woe?" Only time will tell, but if the market is going to firm here and go higher, it will still be on shaky legs that could certainly let go again at anytime.

Today's Markets

Today's move higher was nothing short of explosive. We knew this was going to happen sooner or later but even so, it was shocking to witness. The averages launched higher right out of the bell and never looked back. Internals were downright impressive and just about every sector joined in the fun. The only ingredient lacking was volume.

The NASDAQ (COMPX) saw its third largest percentage gain ever today, having rocketed 146.20, or 8.92%, to 1785. Advancers beat decliners 2832 to 851 and volume came in at 2.2 billion.

The DOW (INDU) posted its second largest point gain after it was lifted by 402.63, or 4.23%, to 9918.05. Internals were again impressive, with advancing issues whipping decliners 2303 to 753. Volume came in at 1.3 billion shares.

As expected, with the spotlight fixated upon equities, treasurys lost ground. The 10-year note fell 15/32 to yield 4.97% and the 30-year bond lost 23/32 to yield 5.52%.

On the economic front, we received word of higher jobless claims this morning. Weekly jobless claims rose by a larger than expected 18,000 to 383,000. However, analysts are forecasting jobless claims at the 400,000 mark as soon as next week. This would be the first time since October of 1992 that the U.S. saw such a high unemployment figure.

Stocks and Sectors on the Move

It was up, up and away for most all technology shares today. The biggest beneficiaries on a percentage basis, however, were those companies that are tied to PC's and that had better chart patterns going into today's rally. By better chart patterns, I mean on a relative basis. As you know, there are precious few tech charts that deserve more than a cursory glance, but on the other hand, there are some that have not lost support and fallen off the cliff just yet.

Case in point is Microsoft (NASDAQ:MSFT). The stock is most certainly in a downtrend, but has held up well at the $60 level. With the good news out of Dell, MSFT took to the sky. Investors were encouraged that consumers would be buying more PCs that would include the Windows software. MSFT was lifted $4.81 to $56.75 on the day.

Also outperforming its peers was Worldcom, Inc. (NASDAQ:WCOM). While WCOM has fallen off the cliff already, it has been bottoming and heading higher for the past three months. The stock added $1.56, or 9.32%, closing at $19.06.

And of course, an analysis of the tech sector wouldn't be complete without looking at the semiconductor stocks. Having been pummeled 25.6% over the last six trading sessions, the SOX.X rebounded 12.4% today. Again, a tech stock with a stronger chart, Advanced Micro Devices (NYSE:AMD) performed well on the day. AMD added $2.28 to $23.02 even after being downgraded by Merrill Lynch from "accumulate" to "neutral" on the basis that demand for low end PCs will be weak.

While it was a decidedly positive day there was the daily token implosion. The grocery store chain operator Kroger (NYSE:KR) fell on a downgrade by CS First Boston from a "buy" to the dreaded "hold". In response, the stock fell $1.59 to $22.99 after having been as low as $21.42.

Looking Forward, Always Forward

We get the granddaddy of all economic reports tomorrow in the non-farm payrolls number. Economists are predicting March payrolls to have added 70,000 jobs versus the previous reading of 135,000.

There are mixed feelings as to what kind of market reaction to expect from either a high or low reading. On the one hand, if the economy created fewer jobs, than the economy may be weaker than expected, which would bode well for further rate cuts. A strong number would mean the economy is may not be circling the drain, but a strong number may decrease the odds of further rate cuts.

I believe we need further rate cuts to get the economy back on track, so I am of the camp that believes the market will rally on a weak reading.

Bottom line is that the bulls would like to see a follow through to today's rally. They are banking on the fact that any further advances will serve to squeeze the rest of the shorts and will also work to get some of the sidelined cash back into the game. But no matter what happens tomorrow, keep in mind that the ice is still thin. If you are going long, half positions are the order of the day.

Keep Stops In Place and Have A Good Weekend

Craig Seidler
Assistant Editor
www.SplitTrader.com

 


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