Option Investor
Market Wrap

Where Did All The Bears Go?

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        WE 4-12           WE 4-6           WE 3-30          WE 3-23
DOW    10126.94 +335.85  9791.09 - 87.69  9878.78 +374.00  -318.63
Nasdaq  1961.43 +241.07  1720.36 -119.90  1840.26 - 88.42  + 37.77
S&P-100  607.77 + 30.42   577.35 - 28.23   605.58 + 24.87  -  7.28
S&P-500 1182.57 + 54.14  1128.43 - 53.74  1182.17 + 42.34  - 10.70
W5000  10852.65 +534.25 10318.40 -327.45 10645.85 +170.55  - 84.07
RUT      455.02 + 20.36   434.66 - 15.87   450.53 +  7.26  +  1.47
TRAN    2766.59 + 79.56  2687.03 - 84.33  2771.36 +126.02  + 13.97
VIX       30.28 -  6.48    36.76 +  2.94    33.82 -  1.09  -   .38
Put/Call    .91              .76              .52

Did I go to sleep last week and forget to wake up? Am I still dreaming? If I am don't wake me up because this is the best dream I have had in a long time. The rest were all crash nightmares! The low last Wednesday on the Nasdaq was 1619 and we have since closed up fours days in a row for the first time since last September and posted a +342 point gain! That is a +21% bounce off the low. The Dow rambled for a nice gain even after WMT warned that earnings would be a challenge. GE helped fuel the gains by posting earnings inline with expectations and dismissing fears that the biggest company in America might be in trouble.

What a news day! There were economic reports, missed earnings, earnings beaten and good news breaking out all over. There were so many analysts saying the bottom had passed that I started looking for an oxygen mask for the thin air ahead. GE for instance said they would never miss estimates and the giant was running well despite the economy. Can't get much more bullish than that.

Internet companies were still riding the YHOO and AMZN waves. Fiber optic and networking companies were soaring despite warnings about future quarters. Chips were still exploding on news of slowing sales and plant closings. We have officially entered the Twilight Zone.

Helping the blowout was news that NT inventory had decreased from 12-18 weeks to only 6 weeks supply. Was that a buying spurt or a write off? We may never know but the fiber/networkers all soared on the news. Maybe the worst is over was the hue and cry from traders and investors alike. The keyword there is of course "maybe."

Notable earnings events on Thursday included Juniper Networks. They announced earnings up +12% sequentially but +420% year over year results. They hit estimates of $.25 per share and investors celebrated by buying. More likely shorts again ran for cover since the stock has almost doubled since the low of $28.60 a week ago. JNPR said later that they had little or no visibility going forward. Buyers ignored that comment.

Rambus also announced earnings but missed estimates by three cents and warned that profits could be down by -20% going forward do to slowing chip and computer sales. Their RDRAM chips were increasing but volume in the older and more common chips was weak. Legal expenses increased over ten fold with the patent suit from Germany's Infineon Technologies. RMBS lost about -$1.50 in after hours.

Handspring announced much stronger revenues than analysts expected and hit proforma estimates of a six cent loss. They affirmed estimates for the next quarter but said earnings would come in at the lower end of the range. Hand lost a little ground in after hours.

DCLK also announced earnings that were better than expected but then lowered its guidance going forward. YHOO, who announced yesterday gained +1.10 on the day but traded down in after hours on the DCLK news. AMZN continued to trade up even in after hours after announcing a deal with Borders to take over a co-branded website and provide the back end operations for Borders. Scratch one more competitor.

Other results included PWAV which reported a -30% drop in first-quarter revenues based on "unprecedented and broadly based" slowdowns in the telecom sector. The -$.15 loss was much lower than the -$.06 analysts expected. ELNT also met lowered expectations but warned that it would miss next quarter. ADI warned that next quarter they would miss estimates due to cancelled orders and a lack of orders.

The good news came from DNA which posted a +21% gain in first quarter earnings. They announced a +$.17 gain which was inline with estimates and were confident going forward. IDPH also jumped on the news because they both are working on some of the same projects.

Economic reports were dire today with the jobless claims at 392,000 the highest since 1996 and at the same per household rate as the 1990-1991 recession. The PPI actually dropped slightly more than expected at -0.1% but was almost completely due to energy prices. No inflation is evident in these numbers. Chain store sales posted only a +1.7% increase and Retail Sales dropped by -2% which was more than expected. Consumer Confidence came in at 87.8 which was the lowest since 1973. What does all this mean? It means the pressure is back on the Fed to lower rates at the next meeting on May 15th. Don't expect any cut before then based on Poole's statement that the May meeting would be the right timing.

The earnings warnings are about over with 831 companies already pre-announcing. Of those 69% warned that they would miss estimates. To put this in perspective this time last year only 151 companies had pre-announced. Of the companies that have already announced earnings 63% beat estimates and only 6% have missed estimates. Before you start drawing comparisons remember that 573 of the 831 companies pre- announcing warned that earnings would be lower and this is the bar by which the 6% have failed. That means they missed their already lowered numbers for the most part.

While I am really glad to see stocks going up on bad news we all need to remember that this was only the tip of the iceberg this week. Next week is the main event and if we can hold the momentum we have a chance. The Nasdaq has moved up on only moderate volume to only -20 points under serious resistance and the Dow is still -170 points under the same. There is a rough week ahead and cautious investors are wondering if they missed the train. There will always be another day and my benchmark for getting back into the Nasdaq is still a close over 2000 on heavy volume. Every major crash occurs when everyone is the most bullish and the bullish sentiment is certainly running rampant. I would be very careful about chasing stocks next week. Do you want to buy CIEN when it is up +80% in four days or JNPR at almost +100%? Let your conscience be your guide and scale into positions if you must play. Tuesday would be my pivot day. If Tuesday is up then maybe the rally has legs. If not then you may get another buying opportunity.

Trade smart, enter passively, exit aggressively!

Jim Brown

No change on the seminar stock after a gap up day and a gap down day. Still waiting for a trend before reinstating the play.

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