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Market Wrap

Let's Hope the Third Time is the Charm...

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         4-7-99          High     Low     Volume   Advances Decline
DOW    10085.31 +121.82 10089.75  9955.16  818,165k  1,373   1,597
Nasdaq  2544.43 - 18.74  2596.25  2511.39 1272,400k  1,746   2,278
S&P-100  672.84 +  7.55   673.13   662.43   Totals   3,119   3,875
S&P-500 1326.89 +  9.00  1329.65  1312.56            44.6%   55.4%
$RUT     397.77 -  3.31   403.18   397.52
$TRAN   3338.87 + 13.75  3352.36  3320.58
VIX       23.53 +   .58    24.82    23.02
Put/Call Ratio      .51

Let's Hope the Third Time is the Charm...

Almost 10,100! After an early rally this morning and mid-day fizzle, the Dow surged to another triple digit gain. 10,085 is a new all time closing high. The S&P 500 also set a new all time closing high at 1326.89. The Nasdaq decided to sit out this round and spent most of the day in the red.

The tech heavy Nasdaq actually gapped up to a new intraday high of 2596, almost breaching 2600, but the index quickly headed south hitting the lows of the day at -52 points. With an 85 point spread between the highs and the lows of the day, bargain hunters picked up the slack and pushed the Nasdaq higher.

While the Nasdaq was struggling to recover, it finally broke even before failing again. Nothing to worry about though. The last two days, the Nasdaq has been setting new closing highs. It was time for a down day (remember your market cycles theory). The Dow, on the other hand, had it's down day yesterday and took off to close above 10K for the third time in history. We hope that the third time has the charm to make it stick.

Traders in the Nasdaq stocks may have had their eyes on the market, but were thinking about YHOO's earnings report after the bell. Combine nervous investors waiting on YHOO's numbers with some negative comments from Merrill Lynch on some PC makers and the sell-off ensued. Merrill said that both HWP and CPQ might turn in less than expected revenue numbers. Both stocks were lower as HWP lost -.25 and CPQ dropped -.63. Other PC makers fell as DELL slipped -.38, AAPL tripped -.88, and SUNW dropped -1.88 ahead of their 2:1 split tomorrow after the bell.

Yet, Merrill wasn't all bad news. They did state that EMC and IBM might beat the Street estimates and turn in better than expected numbers. EMC rose +3.19 on the news while IBM jumped +3.50. In other news, IBM had just announced a new mid-range server geared towards companies to conduct transactions online.

Offline seemed more appropriate for both the software sector and the semiconductors. After yesterday's bad news from NETA [yesterday, NETA announced they would miss earnings estimates of $.48 and turn in between $.30 and $.32], the entire software group fell as investors wanted to avoid any other unpleasant surprises. Plus, the semi's were falling fast today. INTC was one of the few that were positive today; but they have some upward pressure with their 2:1 split happening Monday and their earnings release on Tuesday. Other semiconductor shares were significantly lower as XLNX dropped -3.00, MU -4.13, KLAC -1.00, ETEC -2.47, AMAT - 3.19, LSCC -3.00, and LLTC -2.56.

Considering the some of the numbers across the Nasdaq, it is surprising the loss was not greater. However, some believed that the only reason the Nasdaq couldn't close positive were the worries that YHOO might not perform. Well, their worries are over.

Yahoo! beat estimates of $.08 and hit the high end of the whisper numbers with $.11. The Internet portal had opened this morning above $230 and quickly faded as concerns that they might not meet or beat the estimates grew louder. In the conference call, YHOO said that they saw a great quarter. Their revenue nearly tripled to (take a breath) $86 mln. Not bad considering their market cap is about $43 billion. If you were wondering, that is how you get a P/E of 5654.60. YHOO did say that they had 60 mln unique visitors to their site and 47 mln registered. Plus, they were proud to say their page views had increased to 235 mln a day from 167 mln in December. Profits were up to $16 mln this quarter versus $3.3 mln Q1 last year.

Whether you believe that Internet stocks are overvalued or not, the Nasdaq has sort of adopted them as their mascot. YHOO's strong numbers are a big green light for traders which is good news for tomorrow.

Also good news for tomorrow was Alcoa (AA). AA was the first of the Dow components to report earnings this quarter and they beat estimates of $.54 with $.60. Like the first sparrow to herald the coming of spring, investors were eager to view this as a sign of things to come. Anticipation for strong earnings in the banking sector fueled a strong rally that sent the big boys up sharply. C was up +4.69, BAC jumped +3.38, CMB finally turned around and rocketed +5.13, and JPM added +3.50. Belief that interest rates will remain stable and encouraging signs overseas that Japan and Brazil might be recovering are putting dollar signs in traders eyes.

Not to be outdone, the brokers put in another stellar performance today. SCH continues to skyrocket higher as investors speculate on a split with earnings or their annual shareholders meeting. Plus, DLJ announced they were going to team up with Japan's Sumitomo Bank to offer Internet trading in Japan. Both were up sharply as SCH add +8.75 (earnings 4/15), DLJ +5.69 (earnings 4/14). Other brokers up today in anticipation of strong earnings were EGRP +8.50 (4/12), MER +5.38 (4/13), and MWD was up +3.75 although they have already announced earnings. MWD does have a shareholding meeting at the end of this week and there is a good chance they might announce a split (even though we know it is not currently on their agenda).

Most of the excitement concerning the banking stocks should continue into tomorrow. The Dow did close near its high for the day while volume was strong at 818 mln shares traded. It is possible we may get some profit taking tomorrow morning, but with the scent of earnings in the air the bias should be up. Some analysts actually believe that if the Dow could close above 10,050, that those investors waiting on the sideline would pile in because they didn't want to miss the next run. On top of that, you might have heard the term IRA money. April 15th is the deadline to make your deposit for your IRA which indirectly translates into a lot of cash being dumped into the stock market. Even more, is the industry wide team of institutional fund managers that still have billions to invest into the market and they don't want to miss the Dow's next run either.

Sure, some of you might be concerned that AMD's earnings warning after the close today might spoil the fun, but YHOO's strong numbers are what is really going to set the tone for tomorrow (although you can count on YHOO being down tomorrow). While the Nasdaq did slip on very heavy volume of 1.2 billion shares, the fall wasn't very far. Sure, the advance/decline line continues to get weaker and weaker. During the current earnings euphoria no one is going to care. For weeks, market analysts have been warning that the rally needs to widen or we are all in for big trouble. We agree. The Russell 2000 failed to hold 400 and really shows what the "true market" is doing. All we see in the Dow is the big caps that everyone keeps piling money into. This is where the action is, thus this is where we play the game.

The sleeper here is Friday's economic report. We should keep our eye on the March producer price index on Friday, but with the current economic conditions, most are writing it off as a non- event.

The only thing that can kill us at this point is a turn for the worst in Kosovo. Now that things might be improving in the Balkans we should be home free for the next week or so.

That does not mean buy calls on everything and hope for the best. You still have to watch for the entry point, target shoot on stocks that are prone to allow it, gauge your timing with the current market cycle, and then you can pull the trigger AFTER you have done your homework on why your stock should be moving.

Other than that, enjoy the ride and sell too soon.

asst. editor

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