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Market Wrap

Warnings In Triplicate!

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        05-17-2001        High      Low     Volume Advance/Decline
DJIA    11248.60 + 32.70 11328.60 11181.90 1.34 bln   1901/1203	
NASDAQ   2193.69 + 27.25  2216.36  2167.72 2.14 bln   2413/1460
S&P 100   665.58 +  0.98   670.42   663.13   totals   4314/2663
S&P 500  1288.49 +  3.50  1296.48  1282.48           61.8%/38.2%
RUS 2000  504.76 +  7.55   504.76   497.48 
DJ TRANS 2957.58 + 32.08  2960.55  2915.96 
VIX        25.52 +  0.39    26.68    24.92
Put/Call Ratio      0.59

Warnings In Triplicate!

Another decent day in the markets was followed by a trio of major earnings warnings from tech companies. After trading as high as 11328 and a +115 point gain the Dow pulled back at the close on minor profit taking. The Nasdaq is still struggling to break 2200 with three intraday attempts and a close at 2193. Both indexes posted good days since the obvious reaction to Wednesday's gains would have been serious profit taking. Without the warnings after the close this would have been very positive day.

Dell Computer surprised nobody by announcing results that were inline with already lowered estimates. They had said last week that they would meet those estimates. They did surprise with an earnings warning going forward that was not very "Dellish." They said that next quarter would be flat "at best" with estimates of only $.15 compared to current estimates of $.18. They would not provide guidance going forward and said the PC sector was not yet recovering as expected. One comment was particularly disturbing. They said there were not a lot of new projects to bid on which would indicate that the business outlook for future quarters was bleak. Dell fell about $1 in after hours trading.

Agilent announced they were going to miss revenue estimates by a few bucks. Say $1 billion or -35%. A billion here, a billion there, who cares? They warned that they could post a loss of -.20 to -.30 per share INSTEAD of earnings of +.25 as expected. Wow, what a difference a year makes! They said orders fell -41% and cancelled orders totaled over $500 million for the current quarter. Better hope that tech rebound is just around the quarter! The company cited an "extremely uncertain business climate" for the downturn in business. CFO, Bob Walker, said he expected $100 million in cancelled orders for the next quarter as well. When asked why the number was not higher, considering the $500 million in the prior quarter, he replied that "frankly, there are not a lot of orders left to cancel." OOPS! Nyse:A fell to $34.30 in after hours from a $38.72 close.

PALM wilted after the close when it said that it was dropping its fourth quarter revenue outlook for the second time due to poor sales. They also announced that they had terminated the agreement to buy software company Extended Systems. They are also going to take an inventory write down of about $300 million. CIBC said it was shocking to see another -50% revenue drop and kill the XTND deal at the same time. They expect to double the previous estimates for a loss of $80 million to as high as $190 million instead. With sales and margins dropping drastically analysts now question if they will have enough cash to survive the year. The company itself said conservation of cash was now their top priority. The stock fell -20% to $5.10 in after hours from a close of $7.05.

Juniper also got killed after presenting at a CSFB telecom conference. CSCO announced that they had won two large contracts and the rumor was they beat JNPR. Plus, Juniper said that earnings would be flat to down -10% this quarter. Analysts still expect them to hit EPS estimates by managing costs but the bloom is off the Juniper rose. Instead of investors hoping that they will beat estimates like they have in the past, they are now worried that the sleeping CSCO giant has awakened and is on the prowl. It is possible that the easy pickings from the past may not be as easy for JNPR to find in the future.

These were only the headliners of earnings problems for the day but there were others. Still AMAT and HWP rose on bad news and comments that techs may have bottomed so our future may not be that bad. Speaking of the future, S&P futures are down but not critical so traders are not racing for the exits in after hours.

The sudden burst in the Dow on Wednesday caught many traders and analysts off guard and they are still scratching their heads. Is it real or just a head fake? Calmer heads a hoping for yet another pull back so they can buy a ticket for the train but adding to yesterday's gains today has got them worried. The Dow spike from Wednesday has catapulted the index to highs not seen since September of last year of 11259. That is another level of resistance nobody had even considered when talking about the 11000 ceiling last week.

The Nasdaq is the most likely to suffer on Friday. With the 2200 level holding and three giant tech warnings after the close there could be some rethinking of the rally concept. A negative day for handheld PC makers, desktop box makers and networkers could prove to be a heavy load for investors to carry on Friday. Did I mention option expiration? With sizeable profits from the rate cut rally there is a good chance we will see profit taking before the weekend. Add in expiration Friday and volatility could increase. The VIX is currently heading in the opposite direction and at 25.52 nearing lows set in February.

Investor sentiment appears to be worry about buying at this level but also worry that they will miss out if they don't. This is the key. The lack of a sell off after the Fed meeting has awakened the investor consciousness again and buyers bought the dip with abandon. They also ran over the wall of shorts at 11000 with only about an hour of indecision. Major Dow resistance overcome with only a blink. This should cause any future dips to be rally points and buying opportunities. Dip buying is back and until investors get their noses bloodied again they will continue to do this. If we have a dip on Friday the odds are good that investors will step up to the plate and take another swing for the fences. A word of caution, volume has still not returned. With only 2.08 billion shares trading on the Nasdaq on Wednesday and 2.14 billion shares today, there are still a lot of traders not convinced it is real. Until volume appears traders will buy the dips but still be ready to turn and run on a moments notice. CIEN fell almost -$6 from the days high even after beating the street by four cents because of sympathy for JNPR. There is still no conviction and we need that conviction if this rally is going to last. Investor sentiment is still "the worst is over" but they are keeping their fingers crossed. Remember my admonition from the last two weeks. My signal to buy long term was the Nasdaq closing over 2250 on strong volume. Neither has happened yet. Let your conscience be your guide.

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Jim Brown
Editor

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