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Market Wrap

Nortel calls in sick, 15000 employees go home!

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        03-27-2001        High      Low     Volume Advance/Decline
DJIA     9947.50 +260.00  9960.900 9649.80 1.31 bln   1941/1111	
NASDAQ   1972.24 + 53.75  2004.09  1922.78 1.93 bln   2205/1565
S&P 100   605.58 + 17.13   606.35   587.69   totals   4146/2676
S&P 500  1182.17 + 29.50  1183.35  1150.96           60.8%/39.2%
RUS 2000  452.88 +  5.50   452.88   444.39 
DJ TRANS 2802.49 + 74.62  2811.20  2724.22 
VIX        30.69 -  2.50    33.36    30.09
Put/Call Ratio      0.68

After an excellent day in the markets the warning virus returns to haunt the recovery. You knew it was coming. Everybody has been warning about coming warnings but when they appear the damage is still severe. Nortel, Palm, Disney and Biogen were just several of the big names which warned after the bell. On the Nasdaq, which was positive but still shaky, that takes out three sectors for Wednesday. The Networkers, PC and Biotechs could all see renewed selling.

The warnings were expected. Not by name but still expected. Writers for news sources everywhere had already blocked out space for the after the bell news and only needed to pencil in the names of the stocks and begin accumulating the background material. The biggest name to warn was Nortel which said the continuing economic slowdown would require them to cut 15,000 jobs. Worse than the job cuts was the guidance going forward. "No visible guidance is available for the next twelve months." Translation, sales are really bad, getting worse and we don't want to admit how bad it may be or you will really trash our stock. Sorry but NT got trashed anyway.

The real damage is not to NT stock but to everyone else that is guilty by association. CSCO, SCMR, JNPR, GLW, JDSU, WCOM, CIEN, etc. Just when the Nasdaq appeared to be gaining speed for a breakout NT may have helped blow out the tires.

NT was not the only drag on the Nasdaq in after hours. PALM announced earnings and it was not pretty. The actual earnings beat the street but their guidance going forward was dreary. They expect revenues to only be $300-315 million when analysts were expecting over $500 million. Sales fell by -15% in America and the average selling prices declined by -20%. Let's see, slowing sales and falling prices, not a good recipe for stronger earnings. Needless to say the other stocks in this sector were killed along with PALM which fell from $16 to $10 in after hours. RIMM lost -$5 to $20, HAND fell from $16 to $11. PC stocks like Dell and chip stocks fell in sympathy and the outlook for weaker demand.

Problems were not limited to tech stocks but included biotechs as well. BGEN reaffirmed their guidance for the quarter and the year. The stock spiked up several dollars on the good news. Wrong! The news was not good. The guidance they reaffirmed was less than analyst estimates and when reality struck the stock lost those gains and was trading significantly lower in after hours. It is not nice to fool the analysts!

The good news, bad news joke for the day was the Consumer Confidence Report. Just when you think everyone has the economy figured out, something always surprises you. The number came in at 117 which was the first gain in the index since Sept-2000 and considerably more than the 104.9 estimate. Investors cheered and began to throw money at stocks. But wait? Yes, the consumer confidence may mean the fear of recession has eased but it also means the Fed just moved from an aggressive rate cut policy to a flat bias again. No more rate cuts? Has the collective consciousness completely spaced this important fact? That would mean investors are ready to look only at earnings as a yardstick for investing. Earnings like PALM, NT, BGEN and company. This proves that nobody can predict market direction routinely. Ask any analyst yesterday what would happen if the consumer confidence blew out the numbers. They would have been falling all over themselves forecasting a serious market drop. Quick to cover their bases today analysts focused on the commitment by the Fed to inject liquidity back into the economy and said consumer confidence was not really that important anyway. Go figure!

Investor Warren Buffet made the news today when he said U.S. stocks were still over valued and his companies were seeing increasing impact from the shrinking economy. Still the bond market continued to sell off with both the 10yr and 30yr losing over a full point as investors raised cash to put into equities. The Dow has now bounced +854 points from last Thursday's low of 9106 with almost zero profit taking. Before the NT warning analysts were expecting an assault on 10,000 again on Wednesday. Now the direction is up for grabs. S&P futures are currently down over -7 in after hours and would indicate a possible weak opening tomorrow.

With the Nasdaq showing weakness tonight in Biotechs, Networking, Chips and the PC sector every investor will be looking for that magic bounce. This is the bounce that comes after bad news that says, "it was already priced in" and would be the equivalent of a green light for investors still on the sidelines. If these investors believe there is no material risk at these levels then money will start flowing again. Wednesday is shaping up to be a pivotal day in determining if the recent three day rally has any legs. This oversold rally has surprised everyone with the Dow already recovering almost half of the previous drop. Fund managers are now faced with an 800 point gain and wondering if they missed the boat. Any strength from this level could cause them to rush into the market in hopes that the Thursday bottom was really a bottom and not just another new low.

Enough about the market let's talk donuts. Krispy Kreme to be exact. I am sorry, I thought all the hype over the last year was just hype and the donut bubble would eventually bust. I must confess, Denver did not have a KREM store. Sure I have eaten them before in Vegas but it is just a donut. A very good donut however. My eyes have seen the light. The first Krispy Krem store opened here in Denver on Tuesday. Opened to rock concert style fanfare. People camped out at the store starting the day before. People parked their cars in the drive through since yesterday morning just to be first when it opened. Really! When it opened at 6:AM this morning there was a contingent of police to handle the hundreds of cars lined up for blocks in every direction. Really! News helicopters were everywhere reporting on the event. My wife saw the news and thought she would run by and pick up some donuts for our Tuesday editors lunch at noon. There were still over a hundred cars in line waiting to get into the parking lot and this was lunch time. I would like to take this opportunity to apologize for the many pointed comments I have made in the past year about KREM. Little did I know it was the equivalent of taking shots at DELL, QCOM or JDSU in their prime. I stand amazed at the market power of KREM. Judging by the volume of donuts sold in Denver today, a breakout over $40 has got to be imminent!

Enter passively, exit aggressively!

Jim Brown
Editor
www.OptionInvestor.com

If you have not reserved your seat at the Spring Trading Expo here in Denver on April 5th-9th then you are missing the best seminar we have ever held. This power packed four-day event is structured to fully educate you not only on advanced option strategies but stock analysis as well. This will make you a better and more profitable trader.

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