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Market Wrap

Desperately Seeking Hope

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        02-27-2001        High      Low     Volume Advance/Decline
DJIA    10636.90 -  5.60 10698.40 10560.10 1.11 bln   1444/1592
NASDAQ   2207.82 -100.68  2300.18  2206.72 1.81 bln   1216/2510
S&P 100   650.97 -  4.83   659.10   647.21   totals   2660/4102
S&P 500  1257.94 + 21.79  1272.76  1252.26           39.3%/60.7%
RUS 2000  478.75 -  9.56   488.31   478.75 
DJ TRANS 2971.01 -  7.23  2987.36  2960.80 
VIX        29.03 +  1.69    29.76    27.65 
Put/Call Ratio      0.79

Desperately Seeking Hope

It was hard to find any hope on the tape today as the NASDAQ closed at a two year low. Leading the slide were former tech heavyweights Cisco (NASDAQ:CSCO) and JDS Uniphase (NASDAQ:JDSU) which both set new 52-week lows. Consumer Confidence comes in at 5-year lows but investors still fret about an intermeeting rate cut that appears so vital at this point. Why? Because, according to Fed Vice Chairman Roger Ferguson, household spending continues to hold up well despite the confidence numbers. His bucket of cold water, in conjunction with numerous earnings warnings, sent the buyers into hiding and left the markets for dead. Seeing that Alan Greenspan speaks tomorrow at 9:30am ET before the House Financial Services Committee, one would have thought that an intermeeting rate cut would have preceded this important inquiry. As I have difficulty in finding a good angle to write about this gloomy market and my hope dwindling, the fact that Mr. Greenspan is going to "update" his State of the Economy testimony given to Senate two weeks ago might be of some hope. But what we really need is a rate cut.

Many strategists and market watchers believe that the U.S economy has reached a point where a "wait-and-see" attitude just won't work. At the same time, this intermeeting rate cut hype seems to be just that. Regardless, the market needs a rate cut simply to give the buyers a reason to come back, if only temporarily. While decliners beat advancers on the NASDAQ by a 2-1 margin, volume was relatively light at 1.7 mln shares as buyers were nowhere to be found. There are two reasons that this widely expected rate cut has not yet occurred: first, Greenspan does not like to be bullied into monetary action by the market; and secondly, I think the Fed is waiting for a moment when the market least expects it in order to maximize shock value and effectiveness. He may also be waiting to examine the NAPM numbers expected out on Thursday morning at 10am ET.

In addition to economic concerns, analyst comments and downgrades continue to be a thorn in the NASDAQ's side. Today, Goldman Sachs took the opportunity to lower 2001 estimates on Hewlett-Packard (NYSE:HWP), IBM (NYSE:IBM), Network Appliances (NASDAQ:NTAP), EMC (NYSE:EMC), Broadcom (NASDAQ:BRCM), Vitesse (NASDAQ:VTSS), Applied Micro Circuits (NASDAQ:AMCC), and PMC-Sierra (NASDAQ:PMCS), just to name a few. Nike (NYSE:NKE) received a string of downgrades today after the retailer warned that 3rd quarter earnings would be significantly lower-than-expected. They expect 3rd quarter profits of 34 to 38 cents versus previous estimates of 50 to 55 cents. The direct result was lower domestic footwear sales but the company pointed the finger at B-2-B player i2 Technologies (NASDAQ:ITWO) and their supply chain software application. Both stocks tumbled lower: NKE down $9.57 to $39.60, ITWO down $7.94 to $27.56.

After Friday's late session short-covering rally, fueled by rate cut speculation, the NASDAQ used that momentum yesterday to climb to 2300. Today, that level proved to be resistance and buyers had no interest in taking positions above there after the Consumer Confidence number came out at 10am ET. The rest of the session was a steady decline toward 2200, which offered nice opportunities to play puts with little to no heat. Technically, the NASDAQ is approaching its intraday low set last Friday before the relief rally, 2156. This level will most likely be challenged as earnings estimates continue to be downwardly revised and companies confess their woes. Obviously, upside action on the NASDAQ will be hinged on a catalyst, namely an intermeeting rate cut. Until then, trading puts seems to be working well, yet be on alert for that unexpected moment when the Fed moves. Recent rallies have been short-lived and proved to be put entry opportunities.

Leading the market to the downside was the Networkers(NWX.X), driven by news that JDSU was cutting more than 3000 jobs, or about 10% of its work force. CSCO slipped to $24 a share and Juniper (NASDAQ:JNPR) lost 13%, finishing at $62.75. Biotechs (BTK.X) were weak as well, giving back much of yesterday's gains. The Semiconductor sector(SOX.X) encountered resistance at 600 both yesterday and today, rolling over to lead the NASDAQ lower.

After the bell, the outlook continued to deteriorate when fiber optic company Avanex (NASDAQ:AVNX) downwardly revised its 3rd quarter and fiscal year outlook. The stock fell 20% in after- hours to $19. Following suit, both Chartered Semi (NASDAQ:CHRT) and Altera (NASDAQ:ALTR) lowered numbers, citing the weakening economic environment, the usual suspect.

Meanwhile, over on the Dow(INDU), the Consumer Confidence release tanked the index by 100 points. After the initial sell-off, the INDU began climbing nicely as traders went into insurance and bank issues. Unfortunately, the INDU encountered resistance at 10700, which will remain a challenge for the index. While it sold off late in the session, buyers reemerged at 10600 to buoy the INDU, even as the NASDAQ slipped to the low of the day. So now the INDU is pinned between 10600 and 10700, and will likely trade off Greenspan's testimony tomorrow. Watch the Financials, JP Morgan Chase (NYSE:JPM) and Citigroup (NYSE:C) in particular.

Looking forward, the health of the tech sector is deeply in question as once high flying heavyweights have been humbled. The downside on the NASDAQ is uncertain and the mentality of "it can't go any lower" is dangerous. Expect the unexpected. On the flipside, that may also be an intermeeting rate cut. What we need is hope, and a cut before the March 20th FOMC meeting certainly would provide that temporarily. The damage is done from the previous tightenings of 2000, evident in the constant warnings and revisions. Use rallies into resistance as put entry opportunities and remember that a rate cut will trigger a hefty short covering rally, especially if it comes at an unexpected moment. Even with another easing in the coming month, the market will digest it on a short-term basis, but the economic implications are months and months away. Therefore, be a trader and take it tick by tick, cutting losses early and taking profits quickly. Trade smart.

Matt Russ

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