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MARKET > Commentary Monday, April 09, 2001
by: Jim Booth
Research Analyst

Treading Water

Today's action saw a decided lack of conviction from bears and bulls alike. In the end, bulls managed to stage a decent comeback into the close but were unable to drive the market back to the highs it had seen in earlier trading.

Technology stocks were once again the focus of the day, as Internet related shares were relatively strong following some positive comments from industry leader Amazon.com (NASDAQ:AMZN), which stated that it will post a better than expected loss of around 22 cents this quarter, 8 pennies better than current estimates of a loss of 30 cents. CFO Warren Jenson claimed that it was the "best quarter in our history"." Amazon.com also added that it could break even on an operating basis by as soon as June. AMZN finished the day up $2.81 and closed at $11.18.

The early excitement from Amazon's positive news was quickly abated following some more negative comments from the analyst community concerning the semiconductor sector.

Lehman Brothers analyst Dan Niles lowered his expectations on Intel (NASDAQ:INTC) and Texas Instruments (NYSE:TXN). In addressing the entire industry, Mr. Niles believes semiconductor revenues are likely to drop 10 percent this quarter from the previous quarter. He additionally expects revenues to drop some 18 to 20 percent on a year to year basis. If his suppositions prove to be correct, the semiconductor industry will suffer from its worst year-to-year revenue comparisons since 1985.

Intel dropped $0.43 to $23.20, while Texas Instruments fell an equally modest $0.75 to $27.51. Meanwhile, broad based weakness dropped the PHLX Semiconductor Index (SOX) 12.35 to 475.20.

For the record, the NASDAQ (COMPX) rose 25.35 points to 1745.71 and the Dow Jones Industrials (INDU) gained 54.12 points and closed at 9845.21. Volume checked in on the light side. The NASDAQ saw 1.4 billion shares traded and the NYSE only traded 987 million shares. Breadth was decent. Advancers beat decliners by 19 to 11 on the NYSE and by 21 to 19 on the NASDAQ.

The NYSE did see some notable winners. The Shaw Group (NYSE:SGR), a major piping supplier, rose $3.36 to $53.51; communications company Scientific-Atlanta (NYSE:SFA) gained $3.07 to $42.92; and International Game Technology (NYSE:IGT) improved $2.78 to $51.72.

There were some big names that lost ground today. IBM dropped $1.95 to $96.00 while Best Buy (NYSE:BBY) slipped $1.87 to $45.62. Meanwhile insurance industry advisor Marsh & McLennan (NYSE:MMC) lost $3.90 to $82.00 following a downgrade to Neutral from Outperform from Morgan Stanley Dean Witter.

The NASDAQ (COMPX) was bolstered by a few well known companies. VoiceStream Wireless (NASDAQ:VSTR) rallied $5.22 to $97.03, Check Point Software Technologies (NASDAQ:CHKP) picked up $4.82 to $52.07 and Human Genome Sciences (NASDAQ:HGSI) gained $3.12 to $45.56.

There were a couple of notable losers. Juniper Networks (NASDAQ:JNPR) pulled back a modest $0.61 to $33.19, KLA-Tencor (NASDAQ:KLAC) slipped $1.99 to $34.01 and Sun Microsystems (NASDAQ:SUNW) lost $1.10 to $13.04.

The Splittrader.com Current Play list enjoyed a new 52-week high from Stericycle (NASDAQ:SRCL), which soared $2.25 to $47.25. Another solid winner on our list was Universal Health Services (NYSE:UHS), which gained $1.38 to $91.90. Arch Coal (NYSE:ACI) moved higher by $1.36 to $31.72 and is threatening to make another new high tomorrow.

Modest profit taking ruled the bond pits, as these traders continue to try and figure out the Fed's next move. The 10-year Treasury note slipped 12/32 to a yield of 4.93% while the 30-year government bond dropped 11/32 to a yield of 5.49%.

On the earnings front, wireless communications component manufacturer Sawtek (NASDAQ:SAWS) reported earnings of 22 cents a share after the close, which was in line with reduced estimates. However, the company stated that it sees next quarter's revenues dropping 10 percent. SAWS closed the regular trading session down $1.38 to $14.18. It is now trading in the high $13's in after hours trading.

Biotech concern Molecular Devices (NASDAQ:MDCC) badly missed its earnings after the close and the bad news could hurt other Biotechnology stocks tomorrow. Analysts were expecting profits of 20 cents a share but MDCC reported profits of only 10 cents. MDCC closed the regular session with a gain of $1.05 to $49.99 but is currently getting crushed by over $14.00 in after hours trading.

At this point, traders appear desperate for some news that will help guide their decisions. Today's lackluster volume was indicative of many market participants sitting on the sidelines. The most immediate influence will be the slew of earnings reports scheduled for later this week. Therefore, do not expect much action tomorrow. Traders will likely wait until we get a clearer picture of the earnings trend before moving their cash. Tomorrow is a light day for earnings reports and the bulk of this week's action will probably occur as we approach the weekend.

Still, it is encouraging to see that the NASDAQ (COMPX) appears to have put in another bottom. Last week's low of 1619.58 should provide some support this week. A move back above 1750 tomorrow could signal that the COMPX has some more energy left. The RSI is starting to bounce but is indicating an extremely oversold condition. Now that the MACD has issued its latest buy signal, the path of least resistance appears to be higher.

That said, I would not expect a huge rally later this week, unless earnings reports consistently surprise to the upside and technology companies start guiding future estimates higher. Nevertheless, this bounce rally could easily test the important 2000 resistance.

As for the Old Economy, the Dow Jones Industrials (INDU) appears to be stuck in a very narrow trading range between resistance of 10,000 and support of 9750. The trend for the week will likely be established once the Dow trades through and closes either above the resistance or below the support. Just like the NASDAQ, the path of least resistance does appear to be higher due to a rising MACD.

I am trying to not sound like a broken record but the best strategy is probably still to take quick profits and to keep the stops tight. This market is very nervous and a quick sell-off is still a menacing risk. That said, there appears to be a break in the clouds and if we can get through the early stages of the earnings period with an absence of negative surprises, we may see a decent rally.

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

Jim Booth
Research Analyst

 


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