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Market Wrap

Look out below, Barton Biggs is bullish!

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         01-09-2001        High      Low     Volume Advance/Decline
DJIA    10572.50 - 48.80 10680.70 10531.10 1.20 bln   1617/1285
NASDAQ   2441.30 + 45.38  2474.16  2406.08 1.97 bln   2243/1561
S&P 100   679.45 +  2.14   686.65   676.07   totals   3860/2846
S&P 500  1300.80 +  4.94  1311.72  1295.14           57.6%/42.4%
RUS 2000  463.95 +  2.31   466.40   461.39
DJ TRANS 3068.60 - 73.43  3142.03  3047.44 
VIX        30.79 -  2.56    32.61    30.36
Put/Call Ratio      0.89

What went wrong today? The Nasdaq actually finished in positive territory. Was there a solar eclipse or huge sunspot? Even more astounding the Nasdaq bucked a negative Dow to do it! Did investors actually start selling old economy stocks and buying techs? I would not make that leap of faith just yet. Still it was an encouraging day. The +90 point rally off the lows of the day on Monday and then a positive day today, what more could we ask for?

The Nasdaq gapped open and ran for a gain of +75 points before pulling back as the Dow faltered early. Even with an upgrade to T and a +2.44 gain as well as almost a +$3 gain by MSFT the Dow just could not recover. The top six stocks on the Nasdaq set a one day streak of positive closes with DELL, MSFT, INTC, CSCO, ORCL and WCOM all green for the day.

The Nasdaq rally, notice how quickly we attach the rally tag to any positive day, was helped by of all things, the Internet sector. Posting a +5% gain today on good news from AMZN and EBAY even YHOO was up +$3 only one day before they announce earnings. Earnings which almost everyone expects them to miss estimates I might add. Simply incredible. Do you think the bad news is priced in or are retail investors still in denial? AOL joined the crowd with almost a $3 gain.

Another sector that has been abused recently and outperformed today was the biotechs. HGSI, INCY and MLNM were upgraded by AG Edwards and the entire sector gained. The telecom sector rallied on the upgrade to AT&T and the improved outlook for VZ and SBC. This is encouraging that bargain hunters are moving into the sectors most ignored over the last several weeks.

Amazon.com must be on to something. One day after AMZN affirmed their earnings estimates and improved outlook, their competitor BNBN warned that slow holiday sales would impact earnings. BGRP had already warned for the same reasons. Amazon, with $1.1 bil in cash, looks like they won the book war. The fact that they are winning the Internet sales battle and appear to be on track to be a successful Internet story, gave new life to the Internets. EBAY, who just announced a cash purchase of a Korean auction site, is also flush with cash and reported a growing client base. The Internet is not dead it just needed pruning. Remember PCLN? The almost defunct name your price website won a court ruling on a patent infringement suit. MSFT through its travel site, Expedia, will pay PCLN an undisclosed sum to settle the case. PCLN jumped +.35 in after hours trading. Don't laugh that is a +20% gain for the remaining PCLN shareholders. Now if only YHOO could meet estimates on Wednesday and not warn about future problems. Well, one can at least wish!

One area that did not win today was the cell phone manufacturers. Nokia warned that they only sold 128 million phones last year which was a +64% increase but well short of the 140 million they were expecting. NOK dropped -$4 but the news rippled through the entire sector including their suppliers. A shortage of 12 million units sold means there were quite a few suppliers with millions of parts either unmade, unfilled or unsold. QCOM bore the brunt of the selling with a -4.63 loss.

Financial stocks also took a hit today for reasons not quite clear. Many analysts pointed to the California energy crisis as the culprit. It is true California banks bore the brunt of the selling but even the credit card issuers like COF, PVN and KRB were weak and I don't see how a PG&E bankruptcy would impact them. More likely the rate cut bounce is over and traders are moving on to other stocks. This would not bode well for the expected rate cut on Jan-31st. Do you think they are already discounting that as a done deal?

The earnings warnings have slowed with only a couple after hours today. Cymer was the most visible and one that could impact the trading for tomorrow. Cymer said sales of their semiconductor manufacturing equipment had slowed. This could throw cold water on the semiconductor makers if investors feel the slowdown was due to weak chip sales. Companies like AMAT, NVLS, KLAC, PMTC had been firming as of late and don't need any negative news. Still, after 594 earnings warnings so far this quarter, as reported by First Call, there are not many companies left to warn. This is 91% more warnings than this time last year. Fortunately not all companies are warning. The EMC CEO said today that despite the economic slowdown sales were good and he did not think EMC would have any trouble hitting sales targets foe 2001. JDSU was reported on CNBC today as having affirmed estimates but I could not find it reported anywhere else. JDSU lost -1.56 so I doubt the origin of that story. If warnings are about over then worry about real earnings is about to take center stage. This is a good news bad news story. If companies hit estimates and do not caution on future results then the market should recover quickly. If headline companies start missing estimates on a daily basis and warning that the outlook is grim then look out below. The next three weeks will be crucial to market direction the next three months. The Fed may cut rates again in three weeks but if every headline is bad earnings news then we have our work cut out for us.

The leading contrarian indicator for the last two years, Barton Biggs, Chairman of Morgan Stanley Asset Management, says the Nasdaq is very oversold and ready for a +40% to +50% rally. Wow! What a turnaround. Barton has been negative on the Dow for the last 5000 points and the Nasdaq since passing 2000. He was wrong on both counts for the last two years. If he has now capitulated and thinks the Nasdaq is currently a buy then that has to be a contrarian indicator. Let's hope not! Maybe in reality he was just having a hard time getting people to let his firm manage their assets after being bearish for two years.

A positive day, I am speechless. Advances beat declines on both exchanges with new highs far out stripping new lows. The S&P-500 again closed over 1300 which is seen as a critical level. The Nasdaq rallied back over 2400 again and held the gains from Monday's lows. It is tough to be negative considering the past month of declines. Volume was moderate but there was no conviction. We have been basing or moving sideways on either side of 2400 since Dec-21st. Until we can put several positive days together it is too early to call today's move a rally. As traders we need to start new long positions only as long as the Nasdaq is over 2400. Aggressive traders could risk buying any dip to 2300 again but very carefully and very selectively. There are quite a few small cap stocks with new up trends forming and the Russell-2000 appears to have support at 460. I am cautiously optimistic but you should proceed with care. Choose smaller positions than normal and possibly fewer positions until a real trend is established. A nice breakout and close over 2550 would be really ideal and would confirm to me that better days may be ahead.

Good Trading, Don't buy too soon!

Jim Brown

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