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Market Wrap

Holding Tight On The Follow-Through

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        04-11-2001        High      Low     Volume Advance/Decline
DJIA    10013.50 - 89.20 10173.80  9951.90 1.28 bln   1156/1918
NASDAQ   1898.90 + 46.90  1948.08  1884.95 2.38 bln   2165/1699
S&P 100   598.45 +  0.60   606.34   594.18  totals    3321/3617
S&P 500  1165.89 -  2.49  1182.24  1160.26           47.9%/52.1%
RUS 2000  449.25 -  2.59   458.01   448.34
DJ TRANS 2756.80 - 34.85  2794.52  2748.77
VIX        32.73 -  0.57    34.00    32.63
Put/Call Ratio      0.67

Holding Tight On The Follow-Through

The major averages gapped up in the morning, but ended mixed. The Nasdaq Composite extended its winning streak to three days in a row, adding 46.9 points or 2.5% to 1,899. Winners beat losers by 18 to 17. Trading volume totaled 2.4 billion shares, 7.3% more than yesterday. But alas, new 52-week lows are still outnumbering new highs 221 to 68. Technology stocks fared well despite a disappointment from Motorola Inc. (NYSE:MOT) yesterday, and a downgrade to Market Perform by First Union. After reporting a loss for 1Q, Motorola said it expects a loss in 2Q that is a few cents wider than the 1Q loss. Perhaps the slowdown in the technology sector has not ended. They expect to return to profitability in 3Q.

Many investors look to the semiconductor and biotech sectors as leaders out of this bear market. Although the biotech sector (BTK) slumped 1%, chip companies got a boost early today. In contrast to Lehman Brothers analyst Dan Niles' comments on Monday about 2Q outlook being the worst in 16 years for semiconductors, Salomon Smith Barney has turned positive on the sector. John Joseph has focused instead on the second half of the year, believing that the worst for the industry is nearly over. They predict that a market bottom is only months away. The Philadelphia Semiconductor Index (SOX.X) of 16 leading chip stocks added 8.5% after rising nearly 15% in early trading. The top chip equipment maker, Applied Materials Inc. (NASDAQ:AMAT) added 7.7% to $46.03. Intel Corp. (NASDAQ:INTC) rallied 11% to $27.52. Texas Instruments (NYSE:TXN) surged up almost 15% to $34. You may remember that John Joseph of Salomon Smith Barney was highly criticized when he downgraded the chip sector last July based on deteriorating industry fundamentals. He now believes the industry hit a cyclical bottom in February. He said industry order rates peaked nine months ago and should hit bottom in July before starting to improve in the second half of 2001. His upgrades include a change from Outperform to Buy for Applied Micro Circuits Corp. (NASDAQ:AMCC), Altera Corp. (NASDAQ:ALTR) and Xilinx Inc. (NASDAQ:XLNX). Analyst Glen Yeung raised KLA-Tencor Corp. (NASDAQ:KLAC) to Buy from Neutral, and Novellus Systems Inc. (NASDAQ:NVLS) and Axcelis Technologies Inc. (NASDAQ:ACLS) from Neutral to Outperform.

The Dow Jones Industrial Average suffered a sell-off in retail, drug and cyclical issues. The Average dropped 89.3 points or 0.9% to 10,013.5. Advancers beat decliners by 18 to 11 on the New York Stock Exchange where 1.3 billion shares traded hands. Trading volume decreased 5% from yesterday. Seventy issues posted new 52-week highs, whereas 54 set new lows. In the broad market, all groups ended lower with the exception of financial stocks, which ended higher for a third consecutive day. Sector indices showing gains include the PHLX Bank Index (BKX, up 0.8%), NASDAQ Financial 100 Index (IXF, up 0.5%) and Securities Broker/Dealer Index (XBD, up 3.3%).

BEA Systems (NASDAQ:BEAS) lost 6.8% to $32.81 as one of the few tech losers after posting nice morning gains. The stock was downgraded in the afternoon by Prudential Securities to Hold from Strong Buy, although the $41 price target remains. The stock was downgraded on valuation concerns, trading at 56 times earnings per share. Prudential also noted the stock's recent 74% spike from a low of $20.19 on April 4. There are also risks of acquisition and competition from Microsoft Corporation's (NASDQ:MSFT) Microsoft.NET Web architecture.

EMC Corp. (NYSE:EMC) warned that it would miss 1Q earnings estimates, blaming a slowdown in information technology spending. Some analysts feel that other companies are cutting into to their market share, as well. Apparently, storage software companies were not hurt by the EMC news. Brocade (NASDAQ:BRCD) added 3.25% to $25.40. Veritas Software (NASDAQ:VRTS) tacked on 2.56% to $58.75. Emulex Corporation (NASDAQ:EMLX) rallied 9.4% to $22.52.

At least we are not importing inflation. U.S. import prices took their biggest plunge since December of 1992, falling 1.6% in March. The Labor Department also said U.S. export prices fell by 0.1% in March after a decline of 0.2% in February.

After the Bell

Network Appliance (NASDAQ:NTAP) warned that it would not meet 4Q and full year revenue and earnings-per-share estimates due to delays in customer orders. Network Appliance was expected to earn an average of 10 cents per share in 4Q, but now predicts 1 to 3 cents per share. Ahead of the announcement, Network Appliance closed at $16.56, but is observed trading at $14.60 after hours at the time of writing.

Yahoo! Inc. (NASDAQ:YHOO) is cutting 12% of its workforce. They reported earnings of a penny per share versus 10 cents earned in the same period a year ago. Sales fell to $180.2 million, or $230.8 million less than a year ago. Revenues and earnings were hit by the widespread slowdown in advertising. Yahoo also reported that its senior vice president of international operations will leave the company. Shares have added 52 cents in after hours.

Redback Networks Inc (NASDAQ:RBAK) posted a narrower-than-expected 1Q loss, saying that net revenues jumped 166% from the prior-year period. They reported an operating loss of $18.4 million, or 13 cents per share, versus the expected loss of 15 cents per share. But this is down from a profit of 4 cents that analysts had expected up until April 2nd. Shares are up 96 cents after hours.

Lam Research (NASDAQ:LRCX) missed 3Q earnings estimate by 3 cents per share. The semiconductor equipment maker reported earnings of $44.4 million, or 33 cents per share, versus $57 million, or 48 cents per share during the same quarter last year. Revenue reached $421 million, a 29% increase over last year. New orders declined 60% from last quarter's record levels. Shares closed up 6.8% at $24.57 ahead of the news, and have added an additional 76 cents after hours.

Mercury Interactive Corp. (NASDAQ:MERQ) reported 1Q net income of $16.1 million, or 18 cents per share, compared with $9.8 million, or 11 cents per share a year ago. Analysts expected the company to earn 17 cents per share. Revenue totaled $90.7 million, a 50% increase last year. Shares are adding $2.15 in after hours.

Looking Ahead

Although the Producer Price Index on Thursday is expected to show a decline due to lower energy prices, the decline will be tempered by higher meat prices due to foot-and-mouth disease. The Retails Sales Report on Thursday will be of more interest to the Federal Reserve. Analysts expect only small gains in overall and non-auto sales because the weekly sales reports from chain stores indicated that the sales did not improve much in March. Also on Thursday, Jobless Claims as of April 7th will likely show an increase.

Although the stock market will be closed on Friday, inventories will be reported, likely unchanged. A more important report on Friday will be the University of Michigan Sentiment Report. Although consumer sentiment increased in March to 91.5, look for a decrease to 89.0 in this preliminary April report.

Is the worst over? In other words, have we heard the worst of the earnings news? Unfortunately, we have not heard from everybody yet. At least we have some good news from China. The U.S apologized for "landing" without authorization. The 24 Americans will be released.

The upward movement on increased volume in the Nasdaq Composite yesterday is technically considered to be a confirmation of the rally that started on Thursday of last week. No such rally and confirmation has occurred in the Dow, however. Another confirmation for long-term investors will be the breakout of new leaders from solid base formations, which we may not see until certain index resistance levels are broken and turned into support once again. Trade carefully in the meantime.

PJ Mitchell
Research Analyst

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