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Market Wrap

Gillette suffered a very close shave after an earnings warning

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        4-6-99          High     Low     Volume   Advances Decline
DOW     9963.49 - 43.84 10030.37  9915.76  791,356k  1,185   1,766
Nasdaq  2563.17 +  3.11  2582.37  2544.04 1115,400k  1,574   2,422
S&P-100  665.29 +   .43   670.18   661.38   Totals   2,759   4,188
S&P-500 1317.89 -  3.23  1326.76  1311.07            39.7%   60.3%
$RUT     401.08 -  1.21   403.52   399.39
$TRAN   3325.12 - 28.28  3367.29  3323.30
VIX       22.95 +   .14    23.86    22.32
Put/Call Ratio      .50

Gillette suffered a very close shave after an earnings warning

After warning that sales were weak and earnings would come in under analyst's estimates Gillette lost -$7.81 as investors fled in frustration. Gillette joined Coke as the second big Dow components to both warn of weaker earnings for this quarter and possibly next quarter as well. Both blamed weaker global sales.

The Dow, fresh from a +175 point run yesterday and a new closing high, took the warnings seriously and as a signal to take profits. Hopefully you did not really expect the Dow to be up today after the big gain yesterday. By any standard a big triple digit gain should be followed by a day of profit taking. At this level we are still seeing the D10K sellers. The longer we hover at this level the more momentum we will have when we pass it for good. We are eating up resistance daily and building support over 9900.

Other notable news was the disclaimer by AOL that they were not about to announce a takeover of CBS. The concept baffles me but evidently there were some real strong rumors about an announcement on Wednesday. After AOL denied the rumor CNBC spared no effort to knock the recent price rise of AOL. I am not saying they are wrong but I do disagree with their running the spot over and over all day long. The point was the current valuation of AOL as greater than IBM, AT&T, Coke or Disney. At the high today AOL had a market cap of $173 Bln. The market caps of the other companies were IBM $169 bln, AT&T $168 bln, KO $147 bln, Disney $63 bln. AOL is now the seventh largest company by market cap on the NYSE. AOL made net profits of $92 million last year and IBM had net profits of $6.3 billion. Why should AOL be valued for more than IBM? If AOL continued adding 9 mln users a year, it's current pace, it would take ten years to have 100 mln subscribers. If it made $92 mln with 15 mln subscribers then you could project a $600 million profit ten years from now. This is a very simplistic comparison but I think you get my drift. If you assume IBM is fairly valued for a $6.3 bln annual profit then how many subscribers and page views does AOL need to be fairly valued at the same price? About 75 times more than they have today. Maybe CNBC is right but I don't think they should take it upon themselves to be Internet stock price monitors.

In the Internet arena all eyes are on Yahoo which announces it’s earnings after the close on Wednesday. They will be viewed as a barometer of the health of the sector. RNWK was blessed again today with another $250 price target upgrade and promptly soared another +$41. Gravity anyone?

The Dow traded on both sides of positive all day until the failed cease fire offer in Kosovo. After 2:00 the Dow dropped -100 points to a low of 9915. Bargain hunters stepped in and closed the gap. This may be the only pull back we get this week. The volume was good with the Nasdaq trading over one billion shares. Analysts say the lack of warnings from major tech companies has put a positive forecast on the coming earnings season. The Nasdaq was up over +20 at midday but fell back with the Dow. It still managed to close with another record. Not everyone took part with MSFT turning in a -.88 and WCOM -2.94. CSCO managed to stay positive at +.81 but the leaders were INTC at +2.94 and Dell at +2.75. The Intel number was the result of analysts saying the recent sell off and bearish forecast was over done. Dell was up on expectations of a positive spin at the analysts meeting on Thursday where Michael Dell is likely to say good things about their prospects. Analysts are expecting +38% growth for Dell. If Michael is less than wildly optimistic we could see a buy the rumor, sell the fact pullback.

Schwab boosted the brokers again by publicly announcing their total trades for the quarter were up over 40% and the percentage of online trades was growing as a percent of their total trades.

Network Associates did announce earnings that beat estimates after the close today which bodes well for the software sector.

Without any significant economic news until Friday we are likely to spend more time over 10,000 this week. With the major earnings due out over the next three weeks there is a good possibility we will finally break out over 10,000 and test the upper limits of our new trading range.

Even with the positive outlook the advancers were beaten solidly by the decliners again today with 4,188 decliners to 2,759 advances. The blue chips continue to lead. There is some evidence of life in the small caps with the Russell-2000 closing over 400 for two days in a row. If we can hold above 400 we have a chance in convincing investors that the rally is for real. If it breaks below 400 again I think we could be in for some real trouble after earnings.

The response to starting the option trading clubs on Sunday was incredible. We had so many responses we have not been able to organize them all yet. We hope to have the list of organizers for each area done by this weekend. If you have not emailed us with your interest level please do so soon so we can move this project to the next level. If you just want to visit then email to "visit@OptionInvestor.com" If you can help organize the first meeting of a chapter in your area then email to "organize@OptionInvestor.com". You must include your city and state in the email. We will send a list of organizers to the "visitor" list for each state. You can then contact the one closest to you.

Good Luck, Sell too soon.

Jim Brown

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