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Motorola, Merrill, Paine Webber beat estimates, Intel cheats.

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        4-13-99          High     Low     Volume   Advances Decline
DOW    10395.01 + 55.50 10418.87 10316.47  814,043k  1,545   1,463
Nasdaq  2583.50 - 15.31  2630.52  2575.05 1347,400k  2,156   1,918 
S&P-100  681.45 -  4.00   687.95   677.71   Totals   3,701   3,381
S&P-500 1349.82 -  8.82  1362.38  1344.03            52.3%   47.7%
$RUT     417.24 +  4.92   420.52   412.32
$TRAN   3296.44 - 39.45  3348.86  3290.73
VIX       24.42 +   .76    25.48    23.36
Put/Call Ratio      .50    

Motorola, Merrill, Paine Webber beat estimates, Intel cheats.

Brokers were hot again today. Merrill Lynch soared over estimates with a reported $1.44 vs estimates of $1.22 but finished down for the day at -2.56. Paine Webber on the other hand beat estimates by $.25 and finished up +$1.75 for the day. The difference is in expectation and float. Merrill Lynch has significantly more shares outstanding, is highly visible and had a great pre-earnings run. MER had run from $65 in Feb to over $100 this week. PWJ had been range bound since trading at $34 in Feb to a high of $49 today. This is a pretty good example of expectation fizzle. MER had a great run, we dropped it before the announcement, it beat estimates by +$.22 and then the stock dropped on a day the Dow was setting records.

The big news of course was Intel which announced after the close today. Intel beat estimates of $.55 with $.57 but then warned that the next quarter would be flat to down. This is a standard warning for Intel but after posting revenues this quarter that analysts thought were light, they may take Intel serious for the next cycle. Did Intel cheat on earnings? They reported lower sales and did not have the strong volume in high margin chips but still beat estimates. They again claimed "cost cutting benefits" and other factors. Looks fishy on the surface and analysts want to see profits from increased sales not increased cost cutting. Intel shares were off -2.50 in after hours trading and the S&P futures also dropped -5 points on the news. Intel CEO Andy Grove tried to say all the right stuff on CNBC later but the "spin was not in". You can smile and joke all you want but any way you say weak sales it comes out the same. Andy did not actually say weak sales but there were many clues. Terms like price cuts, product mix, seasonal factors all say weak sales. He did say the Pentium III was on track to be the fastest selling processor ever and he did say good things about holding the line or even increasing profit margins over the next quarter. The drop in stock price in after hours trading may indicate that investors were not filled with confidence during the conference call. Time will tell and tomorrow will be the key.

The web-brokers and bankers were hot hot hot today. Is there no end to the daily double digit gains? Those of us who sold some time ago and are waiting patiently for a pullback appear to be waiting in vain. EGRP +29.50, SCH +15.50, AMTD +$31 ! If a stock is up +65 in two weeks, how much does it have to pull back to be a buy again? I wish I knew !! My thoughts are 35% to 50% of the gain but I do not see that happening any time soon. We have been wanting to play NTBK (NetB@nk) since 3/26 but the +$8 spike to $69 made us wait for pullback. It is now $235! Yes, +$166 in two weeks. Up +$76 today alone. They announced a 3:1 split today. This rampant euphoria doubtless had many people shorting this stock in the last week and the split announcement today caused the mother of all short covering rallies. Now, it really looks like a short but I would not short it, or any other net stock, on a bet. Rational thinking investors are scratching their heads. Stocks don't go up +75 a day and stay there. At least they never have before. The tulip mania references were out in force today!

The Dow set another new record and the RUT was up strongly again. However the Nasdaq and the S&P took a break from the daily new high routine. The advance/decline line was positive again in spite of the two declining indexes. Much ado was made about the Russell-2000 small cap index adding +5% in the last three days. Is the small cap rally showing confirmation of the Dow rally? Don't hold your breath. Astute index watchers trying to find out why the RUT suddenly turned around were surprised to learn that some previously small cap stocks are now the leaders and are no longer small caps. A small cap stock is usually considered to have a market cap of under $1 bln. Don't look now but the largest stocks in the RUT are now CMGI @ $15bln, XCIT @$9bln, EGRP @14bln, MFNX @9bln, AMTD @ $10bln, RNWK @ $8bln. Surprised? The RUT is a market cap weighted index which means the larger the market cap the more influence a company has on the actual index. With these previous "small cap" stocks doubling in value every week it is no wonder the RUT is exploding We do not view the recent RUT advance as a legitimate small cap rally and anybody that looks under the hood will probably agree. Most however will take the index at face value and start proclaiming "small cap rally" at every turn. This would help the overall market even if it is wrong.

That brings us back to the declining indexes, S&P and Nasdaq. We looked at many Nasdaq stocks as possible plays today and almost all of them were showing signs of weakness. It could be only temporary or just profit taking but the signs were there. The Nasdaq had an intraday high of 2630 but closed at 2583 or -47 points from the high. Not a good sign in our book, but the advances still beat the decliners?? Some analysts thought it was pre-Intel jitters. Again, we will see tomorrow. We have tried several times now to break through the 2600 barrier to no avail.

Remember the Compaq inspired market drop on Monday? We dropped -77 at the open and then recovered to close +234 points off the bottom. We could see the market drop on the Intel news again on Wednesday and possibly move forward again. We urge your to be careful on Nasdaq stocks until a direction is determined. With all the PC sales worry in the market the tech stocks may continue to be under pressure. Remember the Nasdaq was down today on very heavy volume, 1.35bln shares. High volume on a down day is not a good sign. We are also up over +500 points on the Dow without a serious bout of profit taking. The watchword is "caution" for the rest of the week.

Good Luck, Sell too soon.

Jim Brown

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