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Market Wrap

Is This Big Game Over For The Summer?

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       5-10-2000           High     Low     Volume Advance Decline
DOW    10367.80 - 169.00 10533.10 10292.10 1,006,469k   887  2,099
Nasdaq 3,384.73 - 200.28  3584.83  3367.06 1,580,113k   912  3,254
S&P-100  739.91 -  17.91   757.25   735.46    Totals  1,799  5,353
S&P-500 1383.05 -  29.09  1410.53  1375.14            25.2%  74.8%
$RUT     474.28 -  16.58   490.86   470.57
$TRAN   2863.17 -  40.99  2905.95  2851.20
VIX       33.30 +   1.59    34.83    31.37
Put/Call Ratio       .68

Is This Big Game Over For The Summer?

There was a winner in the Big Game lottery last night, but winners on Wall Street were harder to find. In fact, whoever took home that record $366 million dollar lottery prize probably did better than anyone CEO on Wall Street today. The markets went lower once again on interest rate and Fed worries. I know, it sounds like a broken record. Believe me I would rather write about a more interesting catalyst, but that is the dagger still sticking in the market's back. Some are expecting this summer lull to...well, last the entire summer. So the question is, should the new lottery millionaire be heading to their broker to invest the prize or are they better off stuffing it under their mattress?

The big fear out there today was the PPI, pending release on Friday. This was the report that started the carnage last month before the CPI really dropped the hammer. The higher oil prices had finally cut into producer prices, signaling the dreaded "I" word is flowing down the pipeline. But, there are others who are less fearful of the PPI. Those are probably the same individuals who are buying off support at the 200-dma on the NDX. Their feeling is that oil was hitting highs in March near $35 a barrel and thus hindered the March PPI. By mid- April though, oil was back to $25 a barrel and thus should translate into a more subdued PPI for April. Even if it comes in at estimates, you could get a relief rally based on how high the fear level is. Traders are digging in for a mammoth number. Not to mention, the Fed meets on Tuesday and that has never been something to gleefully anticipate. And bingo! We have a VIX that closed over 33.

This is tough market, no doubt about it, but I am leaning to the side of the optimists, thinking a calm PPI and 50-point move by the Fed may signal the end of the near-term troubles. Yes, we could be in a Nasdaq bear market, but how long have these Nasdaq bear markets really lasted in recent years?

One of the key technical indicators that we've been watching is the 200-dma on the Nasdaq 100. It has bounced off this level during the recent crisis and did so again today. The NDX closed at 3245, a touch below the 200-dma at 3252. The Nasdaq closed heading lower once again and finished at 3384, down 200. That is a 5.6% move today and a 10.6% drop on the week for the Composite. Volume was still awful at 1.1 billion. Volume continues to get weaker and weaker, which makes me wonder if the sellers are running out of steam as most technicians would suggest. It makes sense too. Buyers strike on one end and diminishing sellers on the other. Here is a chart of the NDX and its recent ability to hold at the 200-dma.

The NYSE went along for the ride. The DJIA dropped 168 points to 10,367 on volume of 693 million shares. There isn't a lot to get excited about here. Financials, Transports and Techs all went down amidst the rate fears. Utilities and Retail held up a little better. The S&P 500 lost 29 points while the bond rose slightly to yield 6.17%.

The big loser of the day was Motorola. MOT was hammered today on news of a downgrade from Salomon Smith Barney analyst, Alex Cena. In a change of heart, Cena foresees a negative latter half of 2000 for MOT. Although he still believes that MOT will be among the winners in the future wireless world, Cena is no longer comfortable with his high-end estimates, which were based on expectations of increased profit-margin improvement. Cena attributes his reconsideration to two things: supply problems and a lost contract. MOT intends on being a frontrunner in the move to data-enabled phones, yet they are finding that key component supplies are already spoken for, or under-produced. The main reason, according to Cena, is that MOT lost its contract with Nortel Networks(NT) for a 3rd generation wireless network. As a result, he cut MOT's rating from a Buy to an Outperform. He also lowered his 12-month price target to $120 from $200, a fairly significant move. MOT took it on the chin today in a volatile trading session, ending down $18.50 at $86.

Today was MSFT's opportunity to propose its own remedy for its antitrust violations. The company asked a federal judge to throw out the government's proposal to break up the software giant, stating that such a punishment is not warranted. In its filing, MSFT said, "Unlike the government's requested relief, which seeks to reengineer the entire software industry and impose extremely burdensome restraints on Microsoft that are wholly unrelated to the case that was tried, Microsoft's proposed final judgment fully redresses the antitrust violations found in this case." They also vowed to appeal U.S. District Court Judge Jackson's April ruling that MSFT violated antitrust laws. MSFT's proposal basically states that a break up remedy is extreme and that a fair remedy would be imposing restrictions on the company's future business conduct. The software giant also argued that the government has no justification for expediting its proposal. The government has until May 17th to respond. MSFT's stock was off $1.63, closing at $66.19.

AMAT posted record earnings for its second fiscal quarter after the bell on Wednesday. The company was in line with Street estimates of $0.55 per diluted share, a net income of $454 mln, up 37.5% from first quarter earnings of $0.40. Yet in today's market, the motto is "beat or be beaten," and that's exactly what happened. During regular session trading, AMAT was down $6 to close at $84.63. In after-hours trading, investors reacted to the report by beating down AMAT shares another 9%, or $7.63, to $77. Looking at the company numbers, AMAT had record net sales of $2.19 bln, up 87% from the same period last year. They also had record new orders of $2.93 bln. This is indicative of what AMAT CEO James Morgan calls "a major industry upturn." He expects to see continued strong demand for semiconductor devices that enable Internet-related and telecommunication products. Regardless, AMAT and other semiconductor stocks are coming under selling pressure in after-hours trading.

In considering the thought that the we may continue to be range- bound for awhile, keep these facts in mind. Since 1950, the markets have always gone up from May to December during a presidential election year. Greenspan knows this and his goal may be to hike by 50-basis points to finally end this recent run of hikes. His last move during the 1994-1995 hikes was by 50 and the Fed then sat pat for over a year before cutting rates. Also, traders love to jump the gun. Any buying spurt could feed off itself and quickly take the markets back up. It will definitely be selective buying, but when you get a chance to buy companies like MOT 60% off the highs, it doesn't take much enticing. This still reminds me of October 1998 when so many solid companies were trading down 50-70% and everyone was sitting around scratching their heads as to why. Needless to say, that was one of the last buying opportunities for long- term investors.

So watch cautiously for a jump-the-gun, don't fear the PPI, VIX is at 33, relief rally. You know, one of those everyday garden variety types. If the markets decide to tank big tomorrow then I will be sitting here scratching my head as well. On the bright side, if the Nasdaq heads towards 3000, you have to wonder if Greenspan would really hike rates by 50 in such an environment. In times of panic, he has typically been market-friendly.

A quick morning market meltdown based on AMAT's earnings could provide entry points, just make sure it starts to turn first. I imagine it will be a quick dip. Still not the kind of market you would want to be putting on any big positions. And in all cases, when in doubt...get out.

Ryan Nelson
Asst. Editor

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