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Market Wrap

Have Analysts' Comments Changed Technology Stock Sentiment?

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       4-10-2000           High     Low     Volume Advance Decline
DOW    11186.60 +  75.10 11287.70 11097.20   858,441k 1,376  1,606
Nasdaq 4,188.20 - 258.25  4475.20  4188.17 1,443,763k 1,205  3,047
S&P-100  817.14 +   4.87   828.89   816.57    Totals  2,581  4,653
S&P-500 1504.49 +   3.72  1527.19  1503.35            35.7%  64.3%
$RUT     518.67 -  24.32   545.90   518.67
$TRAN   2843.13 +  15.41  2883.82  2827.87
VIX       28.01 +   1.07    28.57    26.48
Put/Call Ratio       .37

Have Analysts' Comments Changed Technology Stock Sentiment?

Earnings season is upon us, which would normally speak well for the future of technology stock prices. However, if today's NASDAQ action is any indication, earnings may not be enough to keep the tech-heavy index advancing. As we've noted in a few market wraps over the last week, it doesn't appear to be getting any better in front of tax day (April 17), while low volume and low liquidity help confirm this.

So how do the analysts fit in? It seems that more than just investors were listening when Abbey Joseph Cohen, chief equity strategist for Goldman Sachs, announced two weeks ago that she was lightening up on the tech sector issues. Today, four more brokerages chimed in with similar tunes of their own. Merrill Lynch noted that they felt technology had run its course for now and advised clients to sell into strength on the rebound. Ouch! Not enough? Salomon Smith Barney thinks speculative tech stocks will see further decline all the way to a 38% NASDAQ correction. Next, Warburg called for a volatile NASDAQ index to trade range- bound in the 3650-4450 area for the next two quarters. (Where's Tom Galvin when we need him? He's the DLJ analyst that last week said to look for 20%-30% increases by year end. That was one day before last Tuesday's selloff.) Finally, along came CS First Boston advising clients that they foresee a $2 trillion equity shift (with a "t" - think Bill Gate's net worth x 250) away from technology into new leadership sectors, which includes consumer products and cyclicals. Huh? Aren't those "old economy" stocks? Yes, and once again they have revenue and earnings growth thanks to productivity gains borne of "new economy" companies.

No matter, all that set a negative tone right from the open on the NASDAQ. B2B stocks and biotech were hit particularly hard, but more on that in a minute. Let's quickly get to a few other items that may help us clear some of the fog surrounding the crystal ball.

Recall that last week's volumes on Wednesday, Thursday, and Friday were particularly weak, registering some of the lowest volume days this year. It doesn't lend much credibility to the strength of the rebound if volume doesn't confirm the gains. The fact is with tax bills coming due next week, there doesn't appear to be a bunch of money waiting around to get put to work either - at least not in technology.

Also weighing heavy in the sentiment department is the relatively light put/call ratio, currently at .43, and the Volatility Index (VIX.X) at 28.01. The VIX.X reversed course today after falling from its intraday Tuesday high of 35.43 to 26.04 by Friday. While 30 has historically proven to be a buying opportunity, previous deep corrections have been marked by put/call ratios of .70 or better. A wall of worry is something that we all look to climb over on the way to new highs. Showing how many puts investors are buying compared to how many calls represents the wall of worry. When you strip away the math, it's just an indicator of how many people are scared. The current level says investors, as a whole, aren't sufficiently scared yet. It's tough to imagine that last week's tech crater wasn't considered by some to be a capitulation. However, based on volume, it sure looked like it to us. But the P/C ratio tells a different story.

Alan Greenspan still looms in the background too. Today he spoke to the Electronic Systems Payment Association, but made no mention of the markets. All was well, thus largely ignored. He speaks again tomorrow on job skills (no biggie we think), then again Thursday in front of Congress (possibly a biggie), and Friday to the American Enterprise Conference (probably a non- event).

So is this end of the technology stock gains forever? The answer is no, however we will qualify that by noting that it will likely be harder to make a buck this week as this market trades range- bound with great volatility. We just don't think it's likely that buying volume will pick up to take technology issues (we include biotech here) back to previous levels with taxes due next week. That specter should keep liquidity low and selling pressure on the previous high-flyers. If you owned B2B or biotech companies today, you are not likely a happy camper - lots of holes in those tents by now. Take a look at some of today's more notable issues. We've listed them with today's change, closing price, and recent high.

ARBA (-12.75, 93.75, 183.33); 
CMRC (-19.50, 121.50, 275.63); 
CRA (-30.38, 100, 276); 
ITWO (-28.88, 108.06, 223.50); 
VIGN (-29.44, 171.50, 302.00); 
VERT (-7.33, despite completing their $100 mln MSFT cash 
infusion, 50.88, 148.38); 
MLNM (-23.75, 149.50, 316.00); 
EMLX (-16.75, 95.81, 225.50).  

You get the picture. Biogen (BGEN) isn't going to help at all tomorrow since they missed estimates by $0.02. Though they closed at $65 today, after the announcement, they traded down to $57. Biotech index puts, anyone?

In the end, it was no prettier for the NASDAQ index, which finished with its second largest one-day point decline ever, down 258 to 4188, also its low of the day. This is painful following the highest one-day gain ever last Friday. It seems that market cycles have shrunk from 18 months down to 18 hours over the last 15 years. 3051 decliners turned just 1205 advancers into dust, while surprisingly, new lows outpaced new highs by a much narrower margin of 75 to 45. However, down volume of 1.17 bln shares skunked just 231 mln shares of up volume. Technically, after hovering for a bit around 4400 following today's open, the NASDAQ tested 4300, didn't hold, bumped its head trying to retest 4300, then rolled over and died starting two hours before the close. Closing at the low never looks good for forward sentiment. We are in no man's land. The next support is at 4000, then 3850, followed by 3650. We may soon get the retest that analysts were talking about last week. Any silver lining? Just like when the market seems to perfect, it finds a way to humiliate the most people, so too could it humiliate those betting against it now. It is darkest just before the dawn, and as Harrison says, this too shall pass. Just remember, that means volatility and no clear direction yet.

Lest you think bears invaded our camp, we're pretty pleased with the way the Dow behaved today, though the volume was darned light at just 855 mln shares. Not even the Dow tech losers (HWP, MSFT, IBM, and INTC) could keep the index down. While it ran into resistance at 11,287, the lows have been getting consistently higher since the mid-March return from 9800, which is a positive in our book. Near term support is at 11,100. 11,000 is more solid, with 10,900 more solid yet. While the Dow was up as much as 175 points in today's trading, it could not completely escape the negative sentiment zapping the NASDAQ. For its part the Dow still managed a respectable 75-point gain to close at 11,186. Motorola may be of some help tomorrow. Not only did they beat the street's earnings estimate of $0.58 by a penny, but better still, clocked in with $8.77 bln. in revenue this quarter compared to expectations of $8.5 bln. Their conference call went well and their picture looks good going forward. Anyway, concerning the index, advancers lost out slightly to decliners 1379 to 1597. Up volume edged out down volume by a mere 14 mln shares, even as the NYSE registered just 30 new lows.

We actually have financials and consumer products to thank today for the Dow's performance, a trend that may continue to grow legs if the technology sector remains weak and inflation remains scarce. AXP gained $1.13 to $143.19. C moved up $3.25 to $62.25, while JPM tacked on $4.69 to $134.56. In the consumer product end, PG moved up $2.56 to a new recent high of $65.88 from its shellacking 30 days ago, while JNJ moved up $1.94 to $76.13 from the beating it took in late March. Retailers including Wal-Mart (WMT +2.06, 63.56) and Home Depot (HD +2.56, 66.69) moved up nicely too. So you see, it's not as bleak as it looks.

In the meantime, maybe analyst Joe Battapaglia from Gruntal (the lone remaining bull, it seems) will get more TV exposure. He believes that the tech sell-off is overdone and tech earnings are going to come in strong to prove the naysayers wrong. That's one analyst we'd like to have heard from today.

In closing, don't let hope, fear or greed cloud your judgement. Trade only when it is profitable to do so, and pick your entries carefully. Jim did an excellent job of describing this in the weekend Market Wrap - check it out! While it's tough to sit on your hands, "when in doubt, stay out" might make a more applicable catch phrase in periods of high volatility. Dust off your put plays too in case the market provides us that opportunity. In case you are still in calls from last Friday, as we noted last Monday night before the Tuesday meltdown, it's never too late to sell too soon.

Buzz Lynn
Research Analyst

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