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Market Wrap

Dear Abbey Keeps the Rally Rolling

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        03-07-2001        High      Low     Volume Advance/Decline
DJIA    10729.60 +138.40 10731.50 10591.90 1.13 bln   1925/1164
NASDAQ   2223.92 + 19.49  2243.75  2201.41 1.77 bln   1971/1680
S&P 100   650.72 +  5.27   652.04   645.45   totals   3896/2844
S&P 500  1261.89 +  8.09  1263.86  1253.80           57.8%/42.2%
RUS 2000  484.84 +  3.71   485.50   481.13 
DJ TRANS 2990.43 + 10.00  3004.77  2978.93 
VIX        26.45 -  0.99    28.17    26.32
Put/Call Ratio      0.56

Dear Abbey Keeps the Rally Rolling

Abbey Joseph Cohen gave her two-cents on the state of the stock market today, and traders liked what they heard. Before the opening bell, Goldman Sachs' doyenne of stocks gave credence to the perception stocks have bottomed, saying "we believe that attractive equity valuation has been restored."

With that pleasant thought in mind, Cohen raised her portfolio equity weighting to 70 percent from 65 percent, which was the first time in nearly a year she has changed her portfolio weightings. Then, to add fuel to the bullish tinders, Cohen reiterated her year-end target of 1,650 for the S&P 500 Index (SPX) and 13,000 for the Dow Jones Industrial Average (INDU).

Not surprisingly, Cohen's perceived prognostication powers did wonders for the broader and blue-chip markets. The SPX closed up 8.09 points, or 0.65 percent, to 1,261.89. With today's advance, the SPX posted its longest winning streak in nearly six weeks. What's more, the index is firmly removed from bear-market territory now that its trading at only a 17 percent discount to its March 2000 closing high of 1,527.

Doing the SPX one better, though, was the INDU. The blue-chip average advanced 138.38 points, or 1.31 percent, to 10,729.60, marking the fourth consecutive advance for this Methuselah-laden market barometer.

The INDU was propelled higher today by retailing stalwarts Home Depot (NYSE:HD) and Walmart (NYSE:WMT) rose $2.34 and $1.15, respectively. Also, helping the cause were Nasdaq carpetbaggers Intel (Nasdaq:INTC) and Microsoft (Nasdaq:MSFT), each added more than a $1.00 apiece to their respective share price.

Of course, as we all know, Intel and Microsoft pull double-duty, meaning this dynamic duo has a say in the new economy as well as the old. To that end, the Intel and Microsoft advance helped the Nasdaq Composite Index (COMPX) to overcome a free-fall in communications chip maker Broadcom Corp. (Nasdaq:BRCM), which tanked $7.63 to $40.25 after cutting its quarterly earnings and sales outlook. Nevertheless, the COMPX finished the day up 19.49 points, or 0.88 percent, to 2,223.92 -- its third consecutive winning session.

Technically, the picture is finally starting to improve (improve being a relative term, of course) on the COMPX. For the second day in a row, the tech-heavy index was able to trade above its downward trend started in early February. Whether this means anything or not is still open to interpretation. The last time the COMPX had such an outliner it reversed course the next day.

As for stock news, WorldCom (Nasdaq:WCOM) rose $0.50 to $17.19 after the Wall Street Journal reported the second-largest U.S. long-distance company may be a takeover candidate. According to the latest scuttlebutt, WorldCom CEO Bernard Ebbers might be interested in selling the company for the right price, which is reportedly $35 a share -- a 100 percent premium to Wednesday's closing price.

Poor Bernie might have become a little jaded with the telephony long-distance business after having to pony up millions of dollars in a margin call on WorldCom stock a few months back. Still, this financial setback does not excuse him for suffering from a delusion known in economic parlance as the "endowment effect," which means the propensity to believe something is worth more than it actually is because you own it. If Bernie is waiting for someone to pay $35 a share, or $100 billion, for this commodity business, he's certainly in no hurry to sell.

Another stock making noise today was Yahoo (Nasdaq:YHOO). The Internet portal king traded all of seven minutes during regular hours on Wednesday before its stock was halted after the company announced it had backed out of an appearance at an Internet conference. At the time Yahoo said it would issue a post-close press release, which it did, and the news wasn't good.

According to the press release, Yahoo has initiated an external search for a new CEO to replace Tim Koogle, who will stay on as chairman of the company. Yahoo also cut its first-quarter earnings, lowering its EPS to break-even from the $0.05 expected from First Call. Not surprisingly, Yahoo shares were down sharply in after-hours trading, falling $4.38 to $18.

In more upbeat news, Royal Dutch Petroleum (NYSE:RD), 60 percent owner of the Royal Dutch/Shell Group, submitted a $2.2 billion cash bid (ironically, Royal Dutch is one of the few companies these days that can get away with offering stock) for Denver- based oil and gas exploration firm Barrett Resources (NYSE:BRR). Barrett finished the day up $15.69 to $61.11 while Royal Dutch finished up $0.51 to $60.46.

As for economic news, U.S. consumer borrowing increased to $16 billion in January, more than twice the increase of $7.2 billion reported in December, thanks to the biggest increase in credit card charges since August.

In other news, the Federal Reserve said that the U.S. economy continues to expand, but at a "sluggish to modest" pace, at least that's what the Fed said in its "Beige Book" report on regional business activity.

Looking ahead, the next significant economic data set will be released on Friday with the government's unemployment rate, which is expected to come in at 4.2 percent.

As for trading tomorrow, the Yahoo brouhaha could weigh heavily on traders minds at the open. However, I think the impact on trading will be short lived. The fact is, traders have become calloused to earnings warnings (with so many delivered over the past two months, how could they not?). That's not to say, though, they are ready to jump back into tech issues with reckless abandon, because they are not.

Yes, the chip makers, particularly the communication chip makers, have rallied nicely this week (sans Broadcom, of course). Comverse Technology (Nasdaq:CMVT), PMC-Sierra (Nasdaq:PMCS) and Vitesse Semiconductor (Nasdaq:VTSS) are all trading higher from where the begin the week. But I wouldn't get to excited; I think this has been a trading rally based on short covering, so I would be leery about jumping in at this points (My apologies to you traders looking for the chips to lead us out of the doldrums).

With that said, I would remain conservative in my long picks. In other words, don't be too surprised if tobacco and energy stocks continue to lead the way into the March 20th FOMC meeting.

So for the time being, don't get too speculative with those long picks and keep those stop-losses tight.

S.P. Brown
Contributing Editor
www.OptionInvestor.com

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