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Market Wrap

Ciena to the rescue!

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        02-15-2001        High      Low     Volume Advance/Decline
DJIA    10891.00 + 95.60 10922.60 10800.60 1.13 bln   1671/1393
NASDAQ   2552.91 + 61.51  2593.09  2536.63 2.10 bln   2249/1502
S&P 100   688.50 +  5.82   690.89   682.68   totals   3920/2895
S&P 500  1326.61 + 10.69  1331.29  1315.92           57.5%/42.5%
RUS 2000  508.85 +  5.36   510.02   503.49
DJ TRANS 3042.47 + 42.98  3047.18  2996.60 
VIX        23.46 -  0.76    24.70    23.33
Put/Call Ratio      0.64

Thank Nasdaq:CIEN for the ride. Ciena announced earnings before the open and there was no mention of weakness or whining about slowing sales. They beat estimates by three cents with a 500% increase in revenue over the same period last year. This was only the beginning. CIEN then raised guidance by over +10% for the next quarter and by a dime, $.66 to $.76 for the full year. They said business was good and expected to get better as CLEC buyers moved into the higher end switches, a category in which CIEN feels they will continue to gain market share. The market applauded and the Nasdaq gapped up +50 points and then soared to a high of +102 before the buyers evaporated.

The morning news was much better than this evenings. There was a flood of negative news after the close and Friday may not be a follow through on the rally.

Dell Computer announced earnings after the bell and missed already lowered estimates of $.19 by a penny. While that was not a real surprise the comments by Michael Dell on CNBC were. Dell refused to give guidance going forward for the year and stumbled when guiding lower for the next quarter. Saying the market was "far softer than anyone expected" he cautioned about the business environment. He tried to spin the conversation to the dropping cost of components which would help Dell, he also had to admit that gross margins had dropped to only 18%. If falling costs were helping Dell then why did the margins fall? A little doublespeak there. They are in the middle of a price war and that war had 1700 casualties this week. Dell announced they were cutting their work force by -4% or 1700 employees and Michael Dell would not say for certain that there would be no more. For a company that always bragged about business going forward Nasdaq:DELL is now faced with life in the real world as competitors are starting to catch up. Dell's estimates for the next quarter are $.17 or two cents below current estimates.

Nyse:HWP also announced earnings after the close and met prior estimates of $.37 cents. This was after HWP lowered estimates of $.40 last month. In a prepared statement Carly Fiorina said they could see revenue growth IF "the U.S. economy improves and global exchange rates hold." (and pigs fly) They said they were not comfortable with current estimates going forward and gave all the current reasons including "no visibility" (read no sales) for future quarters.

Schering Plough, Nyse:SGP also warned after the close and said first quarter earnings would be down by -15%. Fortunately it was not economy related. U.S. regulators had inspected some of the SGP plants and will force the company to correct some problems before they can receive FDA approval for a key experimental allergy drug called desloratadine. SGP dropped -$10 in after hours to $39.

The ugliest news after the bell actually started before the close. Huge institutional sell orders, one more than 800,000 shares, caused a sharp drop in Nortel, Nyse:NT, stock of about -$3 to $29. That seller is a happy camper now with the stock trading as low as $21 in after hours. After the close Nortel issued an earnings warning and guided analysts to a -$.04 loss for this quarter instead of estimates of a +$.16 profit. They said the economy was falling faster than expected and they were expecting a faster, more severe downturn by the 4Q. They are going to cut 10,000 workers, 6,000 of which have already been given notice. Nortel is expecting only half the revenue growth analysts had previously targeted. This was a more serious warning than NT had already given in January. NT was still being sold in huge multiple blocks of over 200,000 shares in after hours. Over 10 million shares have traded in after hours. The warning hammered the networking stocks like Nasdaq:JNPR -7, Nasdaq:CSCO -3, Nasdaq:SCMR -3, Nasdaq:BRCD -5 as well as chip stocks like Nasdaq:BRCM -5, Nasdaq:PMCS -3, Nasdaq:AMCC -5.

CIBC World Markets downgraded all the cell phone stocks after the close with NOK, ERICY, SAWS and PWAV leading the list. VSTR was downgraded by W.R.Hambrecht, Salomon Smith Barney and SoundView. Amazon, Nasdaq:AMZN, was downgraded by Prudential to a rare "sell" today. The analyst, Mark Rowen, said he was cutting his price target to $9 from $20 citing anemic growth in the company's core books, music and videos division. He questioned comments by Jeff Bezos about Amazon posting a "pro forma operating profit" by year end. This is not a net profit and would exclude things like interest on Amazon's $2 billion of debt. AMZN fell sharply at the open but closed slightly positive after several other analysts came to their defense.

Tomorrow is not shaping up as a banner day. The Nasdaq futures are down -40 and S&P Futures are down -6. With DELL, SUNW, MSFT, CSCO, ORCL, INTC, JDSU and every other Nasdaq big cap I could find down sharply in after hours trading the odds of a negative open are good. It is far from a sure thing with recent earnings warnings from JDSU and AMAT as evidence that bad news does not always last over night. However the severity of the NT warning and the evasive comments from Michael Dell could cast a cloud over the Nasdaq again. Just yesterday morning we were only +133 points above our low for the year. Despite the rally today, which was mostly short covering, we are still on shaky ground.

The volume was good today with the Nasdaq trading over 2.1 billion shares for the first time since the new single counted volume system began. There was a lot of short covering but there was some retail buying as well. Investors are tired of waiting and ready to buy any positive news. Friday has a flood of economic reports which could inflate or deflate Fed rate cut hopes again. Building Permits, Housing Starts, PPI, Capacity Utilization, Industrial Production and Michigan Sentiment are all on the Friday morning calendar. With the markets closed for Presidents day on Monday there is a good chance traders will want to go into the weekend flat. Actually the Friday before Presidents day has been down NINE years in a row. Any bets for this Friday? The dead stop at 2400 on Wednesday was encouraging. Another bounce off that level could be viewed as a real bottom and all the bad news is priced in. That is significantly below our current level and it remains to be seen if the Nortel/Dell/HWP news can push the markets back down into that range. Remember earnings are now officially over with Dell, HWP and CIEN being the last three big caps of interest to the tech community. There is no catalyst to buy stocks as long as companies are warning on a daily basis. The exception would be a set of market friendly economic reports on Friday morning. Currently there is only a 35% chance of a -50 basis point cut at the next Fed meeting as evidenced by the Fed funds futures. Anything that will improve those percentages could help lift the market. Friday is also option expiration and we could see some volatility as a result. Friday is a wild card but aggressive traders could nibble on any rebound from deep under 2500 and on any bargain hunting bounce at the close. Let your conscience be your guide!

Enter passively, exit aggressively!

Jim Brown

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