9900 held but only barely!!
After trading in a narrow range between 9900 and 9930 most of the day, the Dow hovered only 15 points off the low of the day at the close. This was a good day in my book. The fact that the Dow held at 9900 for the majority of the day is a big plus. No one knows if the same will hold true tomorrow but every day we hold at this level makes a retreat to 9600-9700 less likely. If we could base here for several days and consolidate the big gains from the last two weeks then another strong surge over 10K is a real possibility.
The negative news on Dell today tanked the Nasdaq and things are still looking weaker. DLJ cut earnings estimates on Dell and said they were expecting fewer units sold and lower revenue growth. Either way margins or profits will suffer. They said Dell would be fairly valued in the low $30 range. It is really painful to see these previous high flyers come back to reality. With the continued rumors that IBM may eventually buy Dell, we do not expect Dell to spend much time here but patience is still the keyword. Talks were held but both companies passed on the deal after IBM decided Dell was too expensive. Maybe it is time for them to take another look.
DLJ also warned that the rumors were building that Compaq was going to pre-warn an earnings shortfall. Not that CPQ has a rabid following like Dell but the market would not appreciate the news.
3Com announces earnings tomorrow and they have already prewarned. Any surprise could be to the upside since investors are already expecting the worst. What analysts are going to be looking for, is evidence of inventory buildup and slowing sales.
Other negative news today included the warning by Paine Webber analyst Ed Kerschners that the market was currently overvalued and he expected a pullback of -5% to -15% soon. Still the market did not go down!
Also depressing the outlook some was the huge $12 billion AT&T bond sale coming to market. Most large companies wait for what they perceive as the low points in the interest rate to float large bond deals. By floating this deal AT&T is saying they expect interest rates to go higher from here. This would also be a serious detriment to the stock market which depends on low interest rates to maintain the current rally.
News that Yahoo and Broadcast.com are in takeover talks sent BCST soaring. RNWK a current play that has been adding +$5 to +$10 a day, dropped -$6.56. Is this an entry point? Time will tell.
We are still cautious about the current market direction. The S&P futures are up at 7:30 but we have a lot of darkness left before morning. Wait and watch, we could go either way but if the direction is up, there may not be any conviction. The advance/decline problem is still with us. Today 4,076 declines outpaced 2,835 advancers. Remember you need to confirm upward movement in the market, advancers, the sector and the stock before pulling the trigger on a trade.
Jim Brown editor