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Market Wrap

Time For A Change

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         04-04-2001        High      Low     Volume Advance/Decline
DJIA     9515.40 + 29.70  9625.90  9375.70 1.43 bln   1522/1520 
NASDAQ   1638.80 - 34.20  1698.21  1619.58 2.43 bln   1488/2243
S&P 100   560.99 -  1.39   569.75   554.47   totals   3010/3763
S&P 500  1103.25 -  3.21  1117.50  1091.99           44.4%/55.6%
RUS 2000  425.74 -  1.22   429.36   424.64
DJ TRANS 2701.83 + 21.26  2701.83  2667.07
VIX        39.07 -  0.26    40.25    37.54
Put/Call Ratio      0.73

Time For A Change

It was the same ol' same ol' on the Street today as the NASDAQ attempted a morning rally only to fall to the sellers once again, closing down 34.20 to 1638. Meanwhile, the Dow($INDU) encountered some difficulty at 9600 but mustered up the strength to finish in the green by 29.71 points. The session was packed full of stories, tales, lies, and exaggerations all adding up to a lot of chatter. Through all the noise though, the shorts reasserted themselves in the tech index, driving the NASDAQ to new lows. One thing is for certain: it's time for a change.

Taking the number one spot for market noise was the Lucent(NYSE:LU) rumor that the company was going to go belly up. Apparently, it began in Europe overnight and hit the U.S. equity market with a thud when LU traded as low as $5.50. That is an all-time low for LU with today marking the fifth anniversary of its spin-off from AT&T. The company strongly denied the rumors. "Our $6.5 bln lines of credit provide financial resources and the financial flexibility to execute our turnaround plan," Lucent CFO Deborah Hopkins said. While their debt rating could be cut in the future if the company doesn't get its act together, today's rumor goes to show just how nervous our market really is.

Earnings warnings have become a daily event after the market close. Being one of the biggest weeks for corporate confessions, we have heard from a handful of companies spanning across most market sectors. The B2B sector continued to warn tonight with Commerce One(NASDAQ:CMRC) presenting its disappointing outlook of 15% less revenues and a wider loss than expected for Q1. Ariba(NASDAQ:ARBA) warned of horrible shortfalls on Monday and the difficulties in this particular sector is evidence of the slowing business spending and cost cutting measures across Corporate America. There's no sugar coating is here: we are seeing the darkest times in the market. It hurts, but the bottomline is that Corporate America, and the U.S. economy for that matter, need to get through these trying times.

But, maybe we are getting through those times. I'm not saying its coming to an end, just that there is progress in the process. Economic reports have been turning up with last week's stronger Consumer Confidence number and Monday's NAPM Index. These positive statistics tell us that the economy is healing and just about rule out a intermeeting rate cut. Friday's employment report will be a very important economic indicator especially given the magnitude of lay-offs recently.

After hours, for the first time that I can recall, it wasn't all bad news. Nudging forward the idea that it's time for a change were positive comments from Dell Computers(NASDAQ:DELL) and BEA Systems(NASDAQ:BEAS). As many of the hardware stocks have been showing technical signs of bottoming, DELL began an analyst meeting this evening by maintaining their coming quarter estimates. While the entire year is less certain, DELL reported that they have been gaining market share profitability. They reminded though that there is still four weeks remaining in the quarter. BEAS reaffirmed guidance that they gave in early February.

All this post-session talk doesn't change the fact that the NASDAQ went for new lows again today. Margin selling talk floated around as a downside catalyst. Tax selling was another "buzz" word heard. Even CNBC did a few spots on "the shorts" in the market and "short" funds, or hedge funds. Now, if CNBC is starting to talk about the short side and how much money the bears have made, isn't it time for a relief rally? I certainly would fade CNBC. The NASDAQ is extremely oversold. I know that analysts, myself included, have been saying this since 2000. But the market without fail overdoes it on both sides. I'd be willing to bet, given positive news from DELL and BEAS and the widespread "short" talk, that the NASDAQ finds relief tomorrow. It's long overdue. The NASDAQ is 70% off its highs. In addition, while not a tech stock, Bed Bath & Beyond(NASDAQ:BBBY) posted better-than-expected earnings of $0.22, beating by a penny.

Put activity has been increasing and as a result, the VIX.X has been flirting with the 40 level. As fear increases, investors seek protection of puts, and this drives premiums(volatility) higher. The VIX.X has been in buy territory the past couple of days. However, I do not want to mislead people because the fear level can always increase as it did in October 1998, hitting an all-time high of 60 when Long Term Capital collapsed.

The Dow($INDU) found buyers late in the session and managed to post a 29.71 gain. Resistance was met in the morning at 9600 which coincided with resistance at 1700 on the NASDAQ. But, unlike the NASDAQ, the INDU received bid support at 9433. Strength in the Oil and Pharmaceutical Sectors helped secure the daily gain. Financials came under pressure and lay-offs are increasing on the Street. Citigroup(NYSE:C), which implemented a hiring freeze and cost-cutting measures just a month ago, announced that they will be making modest job cuts. Bear Stearns(NYSE:BSC) already has been laying off employees. Even so, Financials are technically weak and may have more downside in the near future. A breakdown in the INDU below today's low of 9375 would result in further downside to 9200. To the upside, resistance will be at 9600.

Right now, it's tough to try to position for the long-term. It would be prudent to wait until corporations have visibility for the coming year and there has been some technical repair in the market. Even then, stick with quality names. There seems to be a general consensus that the NASDAQ has support at 1500. This leaves some downside risk. A relief rally would allow entry into select put plays on weak tech issues. Yet, the reason that I am cautioning about a relief rally is that current put positions should be attended to, given the real possibility of relief. Oh yeah, Greenspan spoke today. A non-event which reinforces the focus on corporate earnings. Watch Cisco (NASDAQ:CSCO) and Ciena(NASDAQ:CIEN) tomorrow for the NASDAQ direction. CSCO announced that it is discontinuing its 15900 Wave Length Router, an optical switching product, stating that growth was "not as fast" as expected. This should make the optical arena more competitive and give CIEN an added edge. Both stocks finished higher in after-hours trading. Take what the market gives you tomorrow and be nimble if you are short-term trading. Trade smart.

Matt Russ

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