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MARKET > Commentary Monday, April 16, 2001
by: Jim Booth
Research Analyst

A Mixed Start

Technology stock traders were a bit nervous today. The NASDAQ (COMPX) retreated 51.86 points and closed at 1909.57 ahead of what will be a very busy week of earnings reports for the technology sector.

After four straight up days and following one of the best percentage gaining weeks on record, NASDAQ traders were prescient in their reluctance to buy stocks because Cisco Systems (NASDAQ:CSCO) hit the market with a bombshell after the close.

The world's largest router manufacturer and significant technology bellwether warned the investment community to expect worse than anticipated third and fourth quarter results. Cisco Systems claims that current US economic woes have spread throughout the world, and, as a consequence, the company will not only miss its earnings but will also have to slash 8,500 jobs.

Cisco believes that revenues will likely be about $4.69 billion in the third quarter. Analysts had expected revenues to be $5.95 billion and earnings to come in at 8 pennies. According to the company, earnings are now expected to be in the very low single-digit range. Cisco closed the regular session down $0.78 to $17.20. After hours has seen some aggressive selling and CSCO is currently trading at $15.75.

The NASDAQ volume leaders were mostly in the red. Microsoft (NASDAQ:MSFT) fell $1.39 to $60.79, Intel (NASDAQ:INTC) dropped $1.82 to $26.30. JDS Uniphase (NASDAQ:JDSU) retreated $1.89 to $19.90 and Juniper Networks (NASDAQ:JNPR) suffered profit taking to the tune of $2.00 and closed at $48.38.

Plug Power (NASDAQ:PLUG), an alternative residential power generation company, enjoyed a huge day as it gained $3.82 to $18.75. Another NASDAQ winner was Quest Software (NASDAQ:QSFT) which released a new product and gained $2.87 to $27.40.

As for the Old Economy, the Dow Jones Industrials (INDU) did manage a modest gain of 31.62 points to 10,158.56. NYSE volume was a very light 896 million shares. Decliners numbered 18 for every 13 advancers on the NYSE.

Some of the NYSE winners include E.W. Blanch Holdings (NYSE:EWB) which gained $5.13 to $13.15 after agreeing to be acquired by the British reinsurance entity, Benfield Greig Group Plc, for $13.50 in cash. Dow component, 3M (NYSE:MMM) enjoyed a solid day as it rose $2.75 to $110.48. Anadarko Petroleum (NYSE:APC) was another notable gainer, as it picked up $2.96 to $68.31. A very strong energy group saw ExxonMobil (NYSE:XOM) rally $2.55 to $84.55.

The most active list over at the NYSE saw some declines among technology stocks. Northern Telecom (NYSE:NT) dropped $1.35 to $15.25, Micron Technologies (NYSE:MU) lost $1.91 to $44.50, Texas Instruments (NYSE:TXN) fell $2.44 to $33.01 and Corning (NYSE:GLW) shed $1.55 to $22.40.

The pressure upon some of the biggest names in the NASDAQ caused the S&P 500 (SPX) to drop 3.80 to 1179.70. The S&P 100 (OEX) dropped 2.26 to 606.00. The NASDAQ 100 (NDX) was down a disappointing 64 points to 1650. The Russell 2000 (RUT) was unable to buck the trend as it dropped 4.12 to 450.90.

The Play List was bolstered by a solid gain in oil services concern BJ Services (NYSE:BJS), which picked up $2.24 to $76.50. Arch Coal (NYSE:ACI) continued its strong momentum and managed a new high with a gain of $1.53 to $33.78. Another nice performer on our list was Equitable Resources (NYSE:EQT), which picked up $1.57 to $76.48.

The AMEX Oil and Gas Index (XOI) was one of the strongest indices with a gain of 13.70 to 563.28. Much of the gain can be attributed to a Crude Futures rally of 54 pennies to $28.79 a barrel following a refinery explosion in the U.K. The Pharmaceutical Index (DRG) managed to finish with a modest gain of 1.76 to 386.36. On the downside, we saw the PHLX Semiconductor Index (SOX) suffer profit taking of 21.15 points to 576.75. The Biotechnology Index (BTK) was down 18.62 to 495.47.

Treasury prices continued to slump as the investment world focuses upon this week's numerous corporate earnings reports. The 10-year Treasury note dropped 23/32 to a yield of 5.275% and the 30-year bond plummeted 1 7/32 to a yield of 5.685%. Some of the decline can be attributed to nervousness ahead of tomorrow's Consumer Price Index report which is expected to show a rise in inflation of 0.1% overall and 0.2% at the core.

After hours trading has been understandably robust following Cisco Systems (NASDAQ:CSCO) warning. Additionally, we have seen plenty of activity following several earnings reports.

Vitesse Semiconductor (NASDAQ:VTSS) announced that it met consensus earnings estimates of 10 cents. However, the Company missed consensus revenue estimates of $126 million by just over $4 million. VTSS dropped $1.59 to $24.16 during the regular session and is currently trading at $21.99 in after hours trading.

There is some surprisingly good news from Computer Associates (NYSE:CA). The major software firm pre-released its fourth quarter results and said that it will likely beat consensus estimates for 43 cents of profits by 4 pennies. Obviously, this is good news on the technology stock front but it may not be enough to balance the Cisco news. CA is currently halted in after hours trading and closed the regular session down $0.23 to $29.59.

Tomorrow's trading on the Dow Jones Industrials (INDU) will likely be dominated by the earnings releases of several components as well as the CPI numbers. In fact, the INDU will see nearly half of its components announce their earnings by the end of the week. It will certainly be interesting to see what affect, if any, the Cisco news will have. It will be important for the INDU to stay above the critical 10,000 support. The INDU has been trending nicely higher in the short term and if earnings come out as expected, do not be surprised if the INDU climbs above the 10,250 resistance and eventually test 10,500 by the end of the week. The MACD remains in a solid ascent and the RSI has plenty of room before this rally would be hindered by an overbought condition.

The NASDAQ (COMPX) may suffer severely tomorrow on the heels of the Cisco news. Many pundits are already coming out and saying that last week was a "sucker" rally. Whether this is true or not is irrelevant. What does matter is the fact that there is still an incredible amount of fear and massive profit taking could ensue. Tomorrow is an important day for the NASDAQ. If the index can hold on and only drop modestly and show some resiliency with a late day comeback, the bear squeeze will probably resume heading into Friday's options expiration.

The NASDAQ should find some support at last week's low of 1710. A drop below this level could result in some vigorous selling. If we see panic selling following the Cisco news, look for the NASDAQ to bounce off 1600. There is a chance that the NASDAQ can brush off the news. The MACD is still bullish and the RSI is not even close to an overbought condition. If the drop is mild, look for the NASDAQ to attempt a rally to 2000 by the end of the week. If the NASDAQ can close above 2000, many bears may throw in the towel and we could see a quick rally to 2200.

It is important to reiterate that taking quick profits in this market is not a bad idea. Clearly, one should be exceedingly disciplined about placing and executing stops.

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

Jim Booth
Research Analyst


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