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Market Wrap

NASDAQ sails into a New World on Columbus Day

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       10-11-99          High     Low     Volume   Advances Decline
DOW    10648.18 -  1.58 10719.10 10634.88   658,956k  1,354   1,564
Nasdaq  2915.99 + 29.38  2920.73  2886.57   876,039k  1,958   1,882
S&P-100  697.76 -  0.69   701.02   687.58    Totals   3,312   3,446
S&P-500 1283.61 +  5.95  1295.07  1277.36             49.0%   51.0%
$RUT     430.19 +  2.48   430.19   427.71
$TRAN   3026.02 - 55.69  3081.85  3019.43
VIX       22.05 +  0.43    20.98    22.28
Put/Call Ratio      .67

NASDAQ sails into a New World on Columbus Day

Despite the Treasury market being closed, the rate-sensitive technology issues pushed the NASDAQ to a new closing high of 2915.99. Without Treasuries to light the way, the DJIA and the S&P suffered a real lack of motivation, much like a skeleton crew might experience while the rest of the office takes a holiday leave. Trading was directionless and without volume, which had equities trading in subdued fashion. In short, the DJIA lost a point, and the S&P was down fractionally, as the NYSE traded just 659 mln shares. Don't read too much into that, since afterall, today was a holiday. Not even Alphonso the Great (Greenspan), who spoke to a group of bankers in Phoenix, Arizona had any effect on the market. The reason: he thankfully had nothing to say on interest rate policy.

So what was all the excitement about on the NASDAQ? Judging by volume of just 876 mln shares today (that's down about 17% from last week), there wasn't much excitement - again, holiday related. Microsoft traded just 37% of its ADV, and closed down $0.63 at $94.63. INTC was up $0.81 to $76.50 on just 50% of its ADV. CSCO finished up $0.63 at $72.44 on 49% of its ADV. These three are a major chunk of the NASDAQ 100, with MSFT alone making up 15% of the index. What this tells us is that NASDAQ's four horsemen (MSFT, INTC, CSCO, DELL) weren't responsible for today's move.

But that's just part of the story. Picking up where they left off last week, telecoms, led by WCOM (up $3 to $79.88) and Vodafone (VOD; 52.13, +2.13) were the hot ticket, along with Internet backbone companies like Redback Networks (RBAK; 150, +15.63), Copper Mountain (CMTN; 103.38, +10.75, Juniper Networks (JPNR; 244, +31), Alteon (ATON; 88.88, +7.44), F5 Networks (FFIV; 92, +13.94), and Extreme Networks (EXTR; 74, +4.88). EXTR lit the fuse on this sector rally when it pre-announced this morning that it would exceed analysts' expectations in Q1.

If it enables bandwidth expansion, it was a winner today. Current pick, JDSU tacked on $2.19 to finish at $131.56 (careful - that was substantially off the high of the day of $136), while QCOM, another current pick finished over the boiling point at $222.50, cooking up a whopping $8.56. Chips salted the gainers column too with BRCM (124.75, +5.44), TXN (90.19, +4.19), PMCS (92.50, +2.50), RFMD (51.88, +2.00), CNXT (78.97, +4.03) and MOT (96.62, +3.62) all posting nice gains.

The catchword here is "technology", much the same way "plastics" was the catchword in The Graduate. That's the secret to today's rally into the record book. The final score: NASDAQ 2915.99, up 29.38 on 876 mln shares traded. For the 1958 issues up, there were 1882 down. New highs beat new lows 140 to 70. Despite the narrow A/D line, that's pretty respectable for a slow day.

On the other hand, the NYSE just flat lacked for action today, thanks in part to the closed Treasury market - kind of like the kid (age 4 or so) whose older brothers and sisters have returned to school without him, leaving him nobody to play/argue/fight with. Left to his own devices, he'll spend all day trying to find something to do, but not really settling on anything. Such was the case on the Big Board (Bored?). Volume of only 659 mln shares reflects that. While the DJIA started with a nice rally taking the index over 10,700 (10,719 to be exact) and holding for a while, the gains didn't last as the market fell back to 10,634 shortly after 2:00 EST. Despite a half-hearted rally from there to 10,675, the DJIA fell 1.58 points on the day to close at 10,648. Unlike the positive NASDAQ scoreboard, the NYSE finished slightly negative with 1364 advancers falling before 1564 decliners. New lows too pounded new highs 132 to 44. . .no inspiration here (perspiration for a few)

There were some points of interest. What's Monday without a merger? This morning, Global Crossing (GBLX) announced they would purchase Racal Electronics, a British fiber company currently offering voice/data/Internet services in Europe for $1.65 bln cash. The deal helps GBLX connect nine European countries to its fiber network. GBLX was down $1.44 (typical behavior for the acquiring company) despite being rumored as a target of Deutsche Telekom. Also, garnering barely any headlines today, Peoplesoft (PSFT) announced they would acquire Vantive (VNTV) for $433 mln. VNTV gained $3 to $11.94, even though they warned of a $0.17 loss while the Street was expecting a break- even. Some days, it's better to be lucky than good. PSFT was down fractionally.

Though not really a merger, one Internet search engine operator, Ask Jeeves (ASKJ) will be used on the Microsoft Customer support Web site. It works by giving you plain English answers to questions you ask (type in) in plain English. ASKJ was up $17.88 to $65.31! If you've never used it, the results are pretty good. Check it out at www.askjeeves.com.

Any losers today? Yep. Knight-Trimark (NITE) warned that it would come in way short when it reports earnings ($0.18 vs. $0.30 street est.). It lost $3.61 to close at $26.38. Other E-finance issues didn't fare so well today either.

And how about that Yahoo! (YHOO)? Down $10.75 to $181.38 on almost twice the ADV (finally), which makes our put play look pretty good. Thankfully, though Internets traded flat today, they escaped YHOO's coattails as it threw in the post-earnings towel.

A daytrader favorite, Exodus too had an interesting story, as Baron's disparaging remarks brought out "Shorty". The price fell about $4 in pre-market activity. EXDS actually closed up $0.88 while putting the squeeze on shorties that took Baron's bait.

So what do we have for tomorrow and the rest of the week? For starters, this is option expiration week, which tends to be positive, or at least supportive of stock prices. Second, it was reported today that there were $10 bln of inflows into equities last week. OK, great, but Trimtabs reports "just" $3.3 inflows over the 5-day period ended Oct. 6 - still pretty good. That says that investors are putting their cash back to work. Volume last week on the NYSE and NASDAQ supports that. Finally, we have a ton of earnings beginning with Merrill Lynch (MER) and Paine Webber (PWJ) in the morning, followed by Intel (INTC) and Motorola (MOT) after the close. Something to note here on Novellus (NVLS), a silicon wafer fabrication system manufacturer: they reported earnings this afternoon of $0.54 after the close, handily beating estimates by $0.08. That could be reflective of the chipmakers' forward outlook, and may make spark optimism for the chip sector tomorrow. Keep your eye on how this plays out with MOT and INTC earnings tomorrow. The retail sales figures on Thursday and PPI figures on Friday should keep enthusiasm in check. Plan your trades, and plan to sell too soon.

Buzz Lynn
Research Analyst

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