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Market Wrap

Earnings and splits, a volatile mix!

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       1-20-2000           High     Low     Volume Advance Decline
DOW    11351.30 - 131.80 11558.70 11275.00 1,106,357k 1,216  1,815
Nasdaq  4189.51 +  38.22  4164.65  4084.73 1,843,800k 2,067  2,110
S&P-100  783.33 -   6.99   797.17   779.66    Totals  3,283  3,925
S&P-500 1445.57 -  10.33  1465.71  1438.54            45.5%  54.5%
$RUT     527.28 +   7.26   528.23   520.02
$TRAN   2784.31 -  53.73  2845.76  2768.32
VIX       24.16 +   0.89    24.89    22.69
Put/Call Ratio       .50

Earnings and splits, a volatile mix!

The earnings headlines and a flurry of stock split announcements combined to power the Nasdaq to another new record high and the largest volume day ever. The big names are all lining up to wow investors with their record results and many are opting to through a stock split into the earnings fray as well. Notable earnings last night and today were IBM, AOL, GTW, LU, INKT, SUNW, ATHM, AMD and APPL. The excitement was rampant the open but the Dow faded fast and hit the low of the day just after 1:PM.

The big winners this morning included IBM who announced a drop in earnings last night. IBM opened up +$7.00 and briefly traded well over $124 before closing under $120 for the day. IBM announced a -4% drop in revenues to $24.2 bln but proving "it is all in the call" they rallied today on their positive 2000 outlook.

Another high flyer today was SUNW. SunMicro announced earnings of +$.21 beating the street by +.01 on record revenues of $3.55 bln. SUNW fell on the news in after hours trading but they had gained almost $30 since their low on Jan-7th. The big news today in my opinion was the deal announced with Enron (ENE). Enron has announced a deal to "trade" bandwidth between the major carriers much the same way they trade "energy" now. They announced a deal to buy 18,000 servers from SunMicro to power their regional data centers like Intel and Exodus. This was on top of an order from Digital Island (ISLD)for 5,000 servers earlier this week. Clearly SUNW has the right stuff and the heavyweights are beating a path to their door.

Gateway (GTW) also announced after the bell today posting a +$.42 exactly inline with already reduced estimates. GTW had warned recently that the shortage of Intel chips had reduced their sales in the fourth quarter. They announced today that the supply problem had been solved by a new deal with AMD to supply high performance processors. AMD also announced results and blew away estimates with a huge gain. Posting a +$.43 vs whisper estimates of +$.05 on heavy sales. AMD felt the outlook was bright and they were positioned better than ever to take more market share from Intel. Intel was down -$4.44 on the news and after spiking over +$6.00 at the open AMD also closed down -$2.00 on post earnings profit taking.

The bad boy on Wall Street today was Lucent who missed even the analysts downwardly revised numbers and posted only a +$.36 vs revised estimates of $.37. Lucent had closed around $54 and traded down to $52.50 in after hours. Lucent broke a string of 16 consecutive quarters of meeting estimates.

The big winner was Apple Computer (AAPL) which traded as high as +$14 intraday on strong earnings of $1.03 compared to estimates of $.90. Apple gave half of the gains back but still finished up +6.94. Steve Jobs was the really big winner with the Apple board voting unanimously to "give" him a Gulfstream jet ($90 mln) including paying all the taxes and fees for him, and $870 mln in stock. WOW! Almost a $1 bln payday for Steve. Of course the shareholders were thrilled since he literally brought APPL back from the brink of oblivion and helped them post nine consecutive profitable quarters under his direction. APPL stock which closed today at $113 was trading close to $10 in 1997 just after Jobs took over. Good job, Jobs!

Stock splits were like popcorn this week, popping up everywhere. Some of the major players were SEPR 2:1, PMCS 2:1, CRA 2:1, PEB 2:1, USAI 2:1, MUSE 2:1, QLGC 2:1, CTXS 2:1, CLZR 3:2, CBXC 2:1, ASMLF 3:1, NTLI 5:4, PRGN 2:1, NDN 4:3. The gold rush on splits was brought on by the huge gains in the last quarter and the soaring stock prices for these high flyers. Earnings season is the prime announcement time and this is going to provide us with dozens of great trading opportunities over the next month. If the market trades sideways or down these split runs may be the bright spots in an otherwise drab February.

Bond yields stopped their drop at midday today and started creeping up towards the magic 7% again. After trading in the 6.75% range this morning, the yield fell to under 6.68% midday but rebounded back to 6.73% at the close. Oil prices continue to weigh heavily on the bonds as traders worry that the $30 bbl oil will eventually lead to higher inflation. The markets were watching and as earnings begin to fade the focus on the interest rates and the Feds policy will continue to move to the front burner.

The markets were mixed with the Dow posting a -138 loss and the Nasdaq setting another record with a +38 gain. Still the familiar pattern of declines beating advancers and new lows beating new highs, returned on both major exchanges. The Nasdaq was up strongly +75 in early morning and then turned negative at midday. The turn around was nice but it was far from strong. The Dow continues to slide after reaching an intraday high well over 11700 on Monday. The Dow has now lost almost -400 points from that intraday high. We are continuing to bleed gains and it is likely to accelerate as we get closer to the Fed meeting. The market has already priced in a +.25% rate hike but the uncertainty surrounding the Fed should prevent any major gains before the Feb-1st meeting. On the bright side the Russell-2000 is going vertical. It has a great chart (below) and shows evidence of the broadening out of the rally into small caps. Should this trend continue any profit taking on the Dow/Nasdaq could be light.

I am still cautious about the market direction once the earnings begin slowing next week. With the Fed meeting only a week away and the Employment Cost Index just before the meeting we could see the market continue to trend downward or trade sideways. One reader emailed today that he was sure losing a lot of money since I wrote about my bearish outlook on February last Sunday. Well, I am still bearish on February and the almost -400 points on the Dow this week was not a positive event on my charts. I have very rarely said "get out" or "stay out" of the markets. First, I do not have a crystal ball and most readers do what they want any way. I only tell you what I see developing. It is up to you to decide which way you want to play. History in the markets is a wonderful thing. It almost always repeats itself in one form or another. The stock market is probably the most over analyzed invention known to man and also the hardest to exactly predict. If we analyze history we can prevent the major trading disasters again. We may not buy exactly at the bottom or get out exactly at the top but we will not suffer large losses either. Trading is as much a money management game as any other table game I know. If you bet on long shots in poker very often you will go broke. If you hit 17 in blackjack you will lose more often than not. Sure there will be times when you get the 4 but the overall odds are heavily against you. In trading you need to invest heavily when the market is strongly in your favor and invest sparingly when the odds are against you. In blackjack, you would not continue to bet double or nothing after six blackjacks in a row. Trees do not grow to the sky and streaks do not run forever. Historically February has been rocky. Choose your own path. Good Luck, Sell too Soon

Jim Brown

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