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Market Wrap

Earnings Eve

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     10-06-2003            High     Low     Volume Advance/Decline
DJIA     9594.98 + 22.67  9624.91  9562.53 1.21 bln   1811/ 984
NASDAQ   1893.46 + 12.89  1894.22  1876.00 1.36 bln   1949/1089
S&P 100   517.04 +  1.87   518.24   514.62   Totals   3760/2073
S&P 500  1034.35 +  4.50  1036.48  1029.15
RUS 2000  516.72 +  4.44   516.74   510.97
DJ TRANS 2796.67 + 11.82  2806.50  2781.45
VIX        19.51 +  0.01    20.69    19.45
VXN        29.42 +  0.22    30.21    29.32
Total Volume 2,818M
Total UpVol  1,983M
Total DnVol    776M
52wk Highs     707
52wk Lows       19
TRIN          0.89
PUT/CALL      0.66

Earnings Eve
By James Brown

It would have been a rather uneventful Monday but positive earnings news from the likes of PeopleSoft (PSFT) and Knight Trading Group (NITE) renewed investor enthusiasm for the Q3 earnings season finally upon us. Motorola and Rambus chipped in with some positive headlines of their own and Wall Street managed to stretch its winning streak to four in a row. The Yom Kippur holiday was reflected in the very low volume, about 25 percent less than the market's three-month average, with just 1.3 billion shares trading on the big board and slightly more trading on the NASDAQ.

Shallow gains were widespread with only the semiconductors, biotechs and healthcare stocks slipping into the red. Most of the buying was concentrated in technology, brokers and airlines. Strong traffic numbers from JetBlue (JBLU) helped lift the XAL airline index to a new yearly high. The DJIA added 22 points to close at 9594. The NASDAQ added almost 13 points to close at 1893 and the S&P 500 inched up 4.5 points to close 1034. All three are very close to their 52-week highs. Asian exchanges contributed to the positive mood with a strong gain in the Hang Seng index but European bourses were down slightly as the dollar continued to slip against the euro.

Domestically the advance-decline numbers were positive. The NYSE recorded 18 winners for every 9 losers. The NASDAQ turned out 19 advancers for every 10 losers. Up volume significantly out paced down volume on both the NYSE and the NASDAQ. There was another surge in new yearly highs with 612 between the two exchanges. There were only 12 new yearly lows.

Chart of the DJIA:

Chart of the NASDAQ:

Raising the Bar

Shares of PeopleSoft (PSFT) surged another 3.1 percent to breakout above the $20 level after raising their Q3 earnings guidance for the second time in two months. Last month PSFT had raised their guidance to 10-to-11 cents a share and most analysts readjusted their estimates to match the 11-cent figure on estimated revenues of $589 million for the quarter. Today the company said they will top their latest projections. PSFT's CEO said the combination of PeopleSoft and recently acquired J.D.Edwards was "already exceeding our expectations". The stock is now trading above the $19.50-a-share hostile takeover by software rival Oracle (ORCL). PSFT is expected to announce its Q3 results in the next two-to-three weeks.

Another stock breaking out to new highs on raised earnings guidance is Knight Trading Group (NITE). The company is a market maker for a wide range of securities and the rebound in trading volumes has really boosted its business. The company's press release also remarked on the progress they feel they're making with institutional clients. Consensus estimates had been for 11 to 12 cents a share. NITE now sees Q3 earnings in the 16 to 21 cent range. The good news boosted shares of NITE by more than 15% and the XBD broker dealer index gained 1.85%.

Chipping In

Now that he's on the way out Motorola (MOT) CEO Chris Galvin seems to be a lot more agreeable to making improvements at his company. Analysts and investors have been suggesting that MOT spin off its semiconductor business for a long time. This morning, the company finally announced that it would. The Semiconductor Products Sector (SPS) division of MOT currently represents about 18% of their overall sales but it also accounts for a large portion of their operating losses. Details were not readily available but investors will probably have more to digest at MOT's October 14th earnings announcement. The stock jumped almost 10 percent to a new 52-week high on today's news.

Rambus (RMBS) is another chip stock hitting new 52-week highs today. Actually, the stock hit a 2 1/2 year high after rising almost 38 percent in today's session to close at $25.80. Fueling the move was news that the U.S. Supreme court refused to hear an appeal by rival chip-maker Infineon Technologies (IFX) after the company lost its fraud case against RMBS. The courts also reopened RMBS' counter-suit that IFX was involved in patent infringement.

Bouncing Back

It was a bullish Monday around the board with oil, gold and bonds all bouncing back to join stocks in the green. Crude oil futures were green again in what has been a sharp two-week climb from the $26.50 level to back above the $30 mark. Concerns that Saudi Arabia might cut production to prepare for the eventual coming to market for Iraqi oil has combined with investor fears over trouble in Venezuela and new threats of strikes in Nigeria. Add growing turmoil with Israel sending planes to bomb terrorists in Syria and gunfire on the Israel-Lebanon border and we have what could be a recipe for new highs in crude oil. Meanwhile both gold and bonds bounced back after painful sessions last Friday. Gold close up $3.30 to $373.30 and the yield on the 10-year note dropped to 4.151%.

Tomorrow will be the starting gun for Q3 earnings announcement. The major company to watch will be Dow component Alcoa (AA) who reports after the close on Tuesday. Consensus estimates are for 30 cents a share, which is 15 percent better than last year. We'll also hear from PepsiCo (PEP) who reports before the opening bell. Estimates for PEP are 62 cents. After the market will be fast-food giant Yum! Brands (YUM), who is better known for their Taco Bell, Pizza Hut, KFC and Long John Silver's fast food outlets. Estimates for YUM are 52 cents a share.

Despite the onset of Q3 earnings tomorrow's headlines will likely be dominated by one event. You guessed it, the state of California's governor recall election. Will the recall pass? Will Arnold get the vote? Who will be the first to file a lawsuit contesting the results? Oh the myriad of questions we'll be forced to listen to late into the evening tomorrow. Sounds like a good reason to just turn off the T.V.


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