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Market Wrap

Yep, relief rally was definitely over!

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        11-16-2000        High      Low     Volume Advance/Decline
DJIA    10656.00 - 51.60 10757.70 10639.30  943 mln   1213/1654
NASDAQ   3031.88 -133.61  3175.63  3031.76 1.52 bln   1170/2703
S&P 100   724.18 -  9.35   736.78   722.96   totals   2383/4357
S&P 500  1372.32 - 17.72  1394.68  1370.40           35.4%/51.7%
RUS 2000  481.64 - 10.15   491.79   481.27
DJ TRANS 2812.91 - 28.10  2841.60  2807.22
VIX        28.38 -  0.39    29.09    27.78
Put/Call Ratio      0.81

Yep, relief rally was definitely over!

The markets never caught fire today after the court battles heated up in Florida. The big uncertainty problem with the possibility of the election dragging out for weeks has simply made the volume evaporate. The Nasdaq volume was only 1.48 bln and the NYSE also shrunk to barely over 900 million. Advance declines reversed with declines on the NYSE beating advances 4:3 with the Nasdaq much worse at 5:2. The shrinking volume was definitely on the buy side with sellers in abundance. Still there was no panic selling just a continuation of the trend to move to the sidelines until the election is over. The choppy markets can drain even the most experienced traders and more investors are taking a wait and see attitude.

Most of the real stock news came early in the morning with Merrill Lynch downgrading AMCC, PMCS, TXCC, VTSS and BRCM. Considering they are a week late you wonder why bother. The downgrade was based on "inventory concerns and the belief that there is no near-term catalyst for the group." They said inventory could be as much as 40% higher than historical norms and could cause a correction in these stocks in the next two quarters. Thank you Merrill Lynch. The correction came today after the downgrades with BRCM losing -25, PMCS -18, AMCC -10, VTSS -5 and TXCC -7. After being hammered on October 25th and again on Nov-7th is this the third strike that takes these companies out of the game? I don't think so but investors will be gun shy of these stocks for some time to come. Without a major analyst or two coming to their rescue soon they will probably languish until a rising market floats all stocks. They definitely will not rise on their own this month.

With chip stocks already in the tank from the AMAT profit caution last night there was no joy in chipville today. Goldman Sachs lowered estimates on AMAT in line with the guidance from that firm. AMAT actually held up fairly well losing only -1.13. Investors are probably looking for any port in the storm that can generate $3 billion in revenue and solid earnings when compared to the current disasters in the Internet sector. Chip earnings look great in that light.

Nortel dropped another -8% after persistent comments that the share price still overestimates the outlook for earnings as the economy slows in coming quarters. NT closed at a 52 week low. While NT is not in everyone's portfolio the other sector leaders GLW, JDSU and SDLI got killed by association. SDLI lost -25, GLW -4 and JDSU -7.

If you take chips and fiber out of the Nasdaq it is tough to find any heavyweight leadership. About the only thing green on my screen was QCOM which is making a great run after spending five months in the tank. Of the 300 or so stocks I watch on a daily basis there were only 19 green for the day. Only nine of those were Nasdaq stocks. QCOM was the only one that looked decent. The others were only up because time expired before they could go negative after moving up sharply at the open. The Nasdaq leaders all tanked after the court in Florida ruled to allow recounts to continue but the real killer was SUNW. SunMicro closed -$10 off its high as traders sold before an expected analyst meeting after the close. SUNW ended down -6.69 for the day. The analyst meeting was positive and SUNW said they were on track to meet estimates. Surprise! SUNW then traded up after the close +2.00. Still a -$10 drop intraday was the major reason the Nasdaq fell so quickly at the close. Not the only reason but a major cause. When any index starts dropping quickly it triggers further selling of other stocks which accelerates the drop. The unknown cause can produce a dramatic impact across the board.

After the close there was a bunch of earnings announcements and warnings. Proving that the telecom sector can get worse BellSouth said that growth would probably be in the 7-9% range instead of the prior estimates of 13-15%. BLS dropped almost -5 in after hours. SBUX announced earnings of $.22 which was inline with estimates but said they had heavy write-offs of their Internet investments. So what is new? We traders have considerable write-offs as well! They did say they would open 1100 new stores in 2001 which would put them over 10,000.

On the bright side DELL said they won a contract to sell 2000 terabytes of storage to the U.S. Navy and Marine Corp as part of a communication network upgrade. Dell gained +1 in after hours. That was about the only bright side. Broadbase Software said they would lose $.05 instead of the expected penny. AGIL beat analyst estimates by a penny and regained +$2 of the -$9 they lost before the announcement. LNUX also announced earnings that met reduced expectations. Yawn...

TheStreet.com announced a series of layoffs today and a closing of their European operations. They will have to pay close to $8 million in payments to foreign investors to avoid a $48 million poison pill regarding the close. There were rumors that several firms were interested in taking them over but the major name, CBS Marketwatch, MKTW, which actually has a smaller market cap than TSCM, said no. The CEO said on CNBC that there was too much overlap in the readership and the deal did not make sense. TSCM management also said they were not in talks with anyone at this time.

In the "can it get worse" category, the chairman of PSIX was hit with a margin call on 11 million shares of PSIX stock. The CEO was the market all day. I feel for him. He tried to build the best business he could. He went way out on the limb to bet on his vision and got toasted instead. The stock had risen in early trading today after the company announced they had hired Goldman Sachs to advise on alliances or a possible sale. Just when he thought there was daylight at the end of the tunnel the bank forced him to sell into the rally. Good try Mr Schrader, I hope you pull out of it.

With the election at the forefront of every traders mind as well as a vote of no confidence from the Fed and a drop in earnings estimates for the S&P of almost half for the fourth quarter is there any reason the market is skittish? With the S&P estimates cut from 29% to only 16% growth for the fourth quarter many traders are still expecting more weakness in the markets. This PE compression is common in times of a softening economy but many of the current crop of investors have never seen it before. As we know trading a bear market is not nearly as easy as making money in a bull market. It requires perfect timing and nerves of steel. Add in all the negative news events and many traders are taking their cash off the table to wait for the cards to turn in their favor. Jobless claims fell -20,000 this week as the unemployment rate remains tight. The CPI only rose +0.2% in Oct as expected but nobody cared. Prior support is becoming resistance on almost a daily basis and Nasdaq 3000 may be the next mile marker to fall on Friday. The election may be resolved over the weekend and then again maybe not. This uncertainty may cause traders to run for cover again this Friday just like they did last Friday. I see a lot of potential for Friday. Both upside and downside. With a decision on the value of the recounts to be decided and the absentee ballot deadline of Friday night, there is likely to be a lot of volatility. Read that as big moves in both directions. If the court decision says the Secretary of State can ignore the recounted votes then the election will be over with the absentee ballots on Saturday. I would buy any dip on a "don't count" decision. If the recounts will count then it could be as much as ten more days before the final recounts are completed. I would not buy that dip. For conservative traders 3200 still looks like a great benchmark for entry into new plays. Under 3200 stay out, over 3200 go long. Simple strategy, low stress, let the market tell you when to buy. You type A traders never listen to me anyway so you are on your own!

Good luck and don't buy too soon.

Jim Brown
Editor

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