Inertia Taking Hold

When a market makes a major move sometimes it will slowly roll to a stop, rather than just sharply reversing course. This scenario appears to be occurring now as the markets were generally higher. Nevertheless, enthusiasm appears to be waning.

The biggest tradable news item today came from the economic front. Business inventories showed a much larger than expected gain in May. The 0.8 percent increase was the largest in 6 months and it indicates an economic expansion that is greater than had been previously thought. The key will be down the road to see if these inventories can actually work their way lower through higher sales.

The economic report negatively affected larger NYSE stocks while the New Economy stocks of the NASDAQ pretty much ignored the number.

The NASDAQ Composite Index (COMPX) began the day on a positive note, succumbed to some very mild profit taking and then rallied into a very tight range for the rest of the day. Secondary technology stocks were the strong performers while the veteran leaders had a decent day. The COMPX finished the day up 28.49 to close at 4274.67. Internet leaders had another solid day as Yahoo! (YHOO) and CMGI were up $3.63 to $131.63 and $2.38 to $49.06 respectfully. Market leader Cisco Systems (CSCO) moved up to resistance by gaining $1.38 to $69.63. Some of the noisy upstarts had particularly strong days. Avenex (AVNX) increased $31.63 to $162.75, Check Point Systems (CHKP) jumped $26.56 to $260.81, SDL Inc (SDLI) continued its run by tacking on another $24.50 to $394.00 and Plexus (PLXS) increased $13.25 to $135.25. The relative underperformance of major institutional holdings versus popular "new" stocks could be indicative of a return of the day trader many of whom seem to have licked their wounds and have found some cash. Volume was pretty good with 1.57 billion shares traded and advancers defeated decliners 22 to 19.

The Dow Jones Industrial Average (INDU) had a decidedly lackluster day by failing to hold meager late market gains and closing down 8.43 points to 10,804.27. The INDU's heavier weighting in industrial stocks held the Index down due to the Business Inventories report. Alcoa (AA) slipped $1.38 to $31.56 and General Motors (GM) dropped $1.44 to $60.38, helping to offset gains in technology shares as IBM (IBM) rallied $1.50 to $105.44 and Hewlett Packard moved one point higher to $134.81.

Smallcaps outperformed large caps as the Russell 2000 Index (RUT) moved up 2.55 points to 545.18, while the S&P 500 Index (SPX) tacked on a half point to 1510.50.

It is February all over again as the PHLX Semiconductors Index (SOX) and the AMEX Biotech Index (BTK) led the market on the upside. The SOX gained 27.3 points to 1266.4, adding to last week's solid results and the BTK increased a solid 26.64 points to 711.46.

Although earnings reports are dominating trader's psyches, there were a couple of notable acquisitions during what has become a weekly Monday occurrence. Paper giant Georgia-Pacific (GP) has agreed to buy rival Fort James Corp (FJ) for $7.5 billion in cash and stock. The deal will create the world's largest tissue manufacturer. Part of the deal includes an assumption of $3.5 billion in debt. For you arbitrators out there, GP will pay $29.60 cash plus 0.2644 share of its stock for each FJ share. In addition, GP also announced earnings today. The $1.20 per share profits beat consensus expectations by four cents. GP nevertheless closed down $2.31 to $26.13 and FJ gained a whopping $8.44 to a close at $33.00.

The food and beverage industry continues to consolidate as General Mills (GIS) has entered into a definitive agreement to buy Pillsbury, a unit of British group Diago Plc (DGE) for $5.35 billion in stock. Although the deal will make General Mills the fifth largest food company, some analyst are concerned that the company may be overpaying for Pillsbury. General Mills does expect to enjoy significant cost savings down the road, up to $400 million by 2003. General Mills also intends to sell off the newly acquired Pillsbury lines of dessert mixes as well as the Green Giant canned vegetable business. Traders were relatively unimpressed as GIS dropped $2.69 to $33.63.

Corning (GLW) reported solid numbers this morning, which not only lifted its share price, but also influenced shares of other fiber optic equipment stocks. First Call consensus estimates were looking for a profit of $0.80 a share, but GLW blew those numbers away by reporting profits of $0.92 a share.

Machine vision systems manufacturer Cognex Corp (CGNX) beat the Street's estimates by two cents with a report of profits of $0.38 per share. The number compares favorably to last year, which only saw profits of $0.14. The conference call was extremely positive, as the President and CEO cited very strong demand as a reason to guide analysts at least 5 percent higher on their current estimates of $1.50 for fiscal 2000. CGNX gained $2.81 to close at $53.44.

Adtran (ADTN) a leader in digital subscriber line technology (DSL) reported profits of $0.47, which was five cents ahead of expectations and a solid gain from last year's $0.28 profit. Traders were less than thrilled and their collective yawn dropped the stock $3.69 to $67.50. The drop occurred despite the company's rosy forecast that claims that strong growth should continue with plenty of new product introductions down the road.

Mobile computing equipment and PC card manufacturer Xircom (XIRC) beat the Street by a penny after the close. The $0.47 per share profit was a modest increase over last year's $0.39 profit. After an acquisition related charge, XIRC actually posted a loss of $0.17 per share. The stock is hanging in there in after hours trading by rising a quarter point to $49.25.

Here is a partial list of potentially market influencing numbers coming out tomorrow before the opening: America West (AWA), AnswerThink (ANSR), Boise Cascade (BCC), Charles Schwab (SCH), Comerica (CMA), Cypress Semiconductor (CY), Dana Corp (DCN), Forest Labs (FRX), Freddie Mac (FRE), General Motors (GM), Gentex (GNTX), Honeywell International (HON), Johnson and Johnson (JNJ), KeyCorp (KEY), Merrill Lynch (MER), Nextel Communications (NXTL), Parametric Technologies (PMTC), Philip Morris (MO), Schlumberger (SLB), Southwest Airlines (LUV), Time Warner (TWX), Unisys (UIS) and Wells Fargo (WFC).

After the close look for the following reports: Apple Computer (AAPL), Broadcom (BRCM), Cadence Design (CDN), Commerce One (CMRC), Compuware (CPWR), Digital Microwave (DMIC), DoubleClick (DCLK), Healthsouth (HRC), i2 Technologies (ITWO), Incyte Pharmaceuticals (INCY), Integrated Device Technology (IDTI), Intel (INTC), Kent Electronics (KNT), Microsoft (MSFT), Millenium Pharmaceuticals (MLNM), Rambus (RMBS), RealNetworks (RNWK), RF Micro Devices (RFMD), Siebel Systems (SEBL), SonicWALL (SNWL), Teradyne (TER) and Veritas Software (VRTS).

These lists are not complete. If you are looking for a stock that you may own you should double check with that company's Investor Relations Department to confirm the exact earnings release date. The CPI is slated to be released tomorrow and it should have a strong influence on the market. The pending release can partially explain today's dull market. The consensus estimate is for an increase of 0.4% for the month of June. A negative surprise that shows inflation increasing faster than expected could cause an avalanche of profit taking. A better than expected result should enable the market to keep moving forward.

After having successfully broken out of its base formation from June, the NASDAQ has been able to string together several positive days. It does appear that momentum is abating even though the index has not challenged the next major resistance point, which is April's high just above 4450. Some more solid earnings coupled with a benign CPI and we could see a test of that resistance by the end of the week. Be cautious if the NASDAQ moves below today's low which is light support at 4215. A drop below that level and we could easily drop right back to the top of the base at 4100, which would not be an unreasonable correction of the recent move. We are also fast approaching a sell signal from the RSI, which is telling us that an overbought condition is near.

The INDU continues to under perform. With a slew of Pharmaceutical and Financial earnings due later this week, as well as the Microsoft (MSFT) and Intel (INTC) earnings due tomorrow, look for volatility to heat up. 11,000 is fast becoming an important resistance level.

We are fast approaching a time when you should be utilizing trailing stops. Granted we may see some volatility, which may take you out of your winners, but taking profits is why we do this. Sometimes stating the obvious is a necessary practice. Longer term it looks like we have safely put the correction behind us. That said we have probably hit the latter stages of the summer rally and we will probably see a slowdown in activity in August which will give the market time to consolidate its excellent recovery. Now would be a good time to start looking for some trading ranges that could give you some profits during a slower market.

Good Luck! And may all of your trades be winning ones!

Jim Booth
Research

Don't forget the 3-day stock/option seminar in New York starts next Thursday and there are still a few seats available. Instructors include Chris Verhaegh, Steve Rohades and Scott Zimmerman. Traders Corner writer, Mary Redmond, will also be there. See the rest of the schedule below.

S.P. Brown
Asst. Editor

 
***********************
SEMINAR SCHEDULE
***********************
 
Technical Analysis, Stock and Option Seminar
Three days of indepth education.
 
The next seminar is a three day event in New York on
July 13-15th. We guarantee you will not be disappointed.
The class size is small so you will get plenty of
individual attention from Chris Verhaegh and the staff.
At less than the cost of a bad trade you can learn how
to analyze stocks and trade options like the pros.
Don't wait, do it now.

July 21-23 Seattle        3 day

July 27-29 Atlanta        3 day

Aug  10-12 Orange County  3 day NEW !!!!!!!!!!!!!!

Aug  17-19 Orlando        3 day

Aug  28-29 Detroit        2 day

Australia coming soon!

Has the market been beating you up? Did you give back
your gains from April? Would you like to understand
all the technical indicators our writers use? Does
the alphabet soup of technical terms like RSI, DMA,
MACD, ROC, Stochastics, Bollinger bands, sound like
Greek to you?

You can learn from the experts how to interpret all
these indicators, read charts, pick stocks and which
option strategies to use on those stocks for less than
the cost of one bad trade.

Reserve your seat now for one of our regional seminars.

Click here for more info:

http://www.optioninvestor.com/seminar/seminar.asp


************************************
OptionInvestor/Optionetics
Summer Seminar Series
Back by popular demand!
************************************

We are proud to announce the summer OptionInvestor & Optionetics
seminar schedule featuring options guru, money manager and best
selling author George Fontanills.

The OptionInvestor/Optionetics Seminar was designed to help
you gain the know-how necessary to compete in the marketplace.
Over the course of the last 7 years George Fontanills has developed
a series of high profit, low risk, low stress trading techniques
that will empower you to systematically approach the markets. Learn
how to intelligently combine options to maximize profits and minimize
risk. Designed to fit the needs of novice and seasoned traders, this
workshop and home study course will show you how to use managed risk
options strategies in today's highly volatile markets.

The seminar and home study course materials include:

Delta neutral non directional trading

28 options strategies including Spread Trading, Straddles,

Strangles, Condors (low risk trades), Butterflies

George Fontanills' "5 Minutes a Day to find a trade"

How trade volatile markets

911 Repair Strategies - what to do when a trade goes wrong

trade action plan "How to get Started".

With our unique tuition package you will receive:

Before the event:  Home Study Course with 8 digitally mastered video
tapes and a 500 page manual "Trading for the 21st Century" plus your
personal coach available to answer your questions.

Live Seminar: 2 days of live trading with George Fontanills and Tom
Gentile plus FREE partner attendance - two people for the price of
one. You may bring a friend, spouse and business partner to the event
for FREE.  Both teachers available for our personal questions
and you get a full Money Back Guarantee.

Venues: George Fontanills, together with his chief options
strategist Tom Gentile, will personally teach two days live
trading delta neutral strategies in the following cities:

July 23 & 24  San Francisco

Our Home Study Course is available for the same price if you can't
make these dates and you may attend a later seminar when your
schedule allows.

Order today as seating is strictly limited to first come first
served basis. You will receive a $5,000+ value package, but pay
only the special price of $2,400 for your tuition.  Please reserve
your place now to not be disappointed when we sell out.

Click here for more info:

http://www.optioninvestor.com/seminar