Meandering Markets Continue Divergence

Amid favorable economic news released today, the major averages staged an early rally. Sales of new homes fell in by 3.7 percent in June, which was the third straight monthly decline for this economic measurement in over two years. Also released, the report on leading economic indicators came in unchanged, a further indication that the Feds chain of interest rate hikes have been sufficiently adequate to slow the economy to sustainable levels.

Buoyed by renewed investor interest, the NASDAQ Composite Index (COMPX) reversed its course of the previous two sessions in early trading and registered fair gains across the board. The afternoon session saw buyers bail out with what has become a typical lack of conviction and the COMPX closed down 27.06 to 3658.46 on volume of 1.45 billion shares. Advancing issues trailed decliners by 1849 to 2019.

Showing particular volatility was the NASDAQ 100 (NDX), which in early trading climbed 1.51 percent 3576.55 up 53.51. Receiving strong performances from companies such as, Veritas Software Corporation (VRTS), Echostar Communications (DISH) and Oracle Corporation (ORCL). The gains could not be held and the index tailed off sharply in the last few hours of trading to close down 30.81 at 3490.34

Meanwhile, the Dow Jones Industrial Index (INDU) was up 80.58 points closing at 10,722.06 a gain of .57 percent. Hewlett- Packard (more on this later) was one of the prime movers. Volume for the day was 1.6 billion shares. The New York Stock Exchange had volume of only 1.14 Billion shares with advancing issues outpacing declining issues by 1342 to 1071.

Action in the broader markets saw the S&P 500 (SPX) cling to a small gain of .60 closing at 1438.70, while the Russell 2000 (RUT) closed at 500.22 with a more respectable gain of 2.45.

Sectors responsible for much of the choppy activity include the PHLX Semiconductor index (SOX), as it was in positive territory for most of the day, only to finish down 1.58 closing at 954.25. The NASDAQ Computer index (COX) closed at 2154.41 down 25.69 for the day, giving back nearly 70 points from its high of 2222.03.

Meanwhile the AMEX Biotechnology Index (BTK) continued to show strength closing up 7.01 to 631.09. Genentech Incorporated (DNA), Amgen Incorporated (AMGN) and Biogen Incorporated (BGEN) were prominent among the pacesetters.

Speaking of Biotechs, shares of Protein Design Labs(PDLI) climbed sharply on positive Q2 earnings. The Fremont California company, a provider of technology used in the production of humanized antibodies, reported second-quarter profit of $5.0 million, or $0.42 a share, compared to a loss of $2.7 million, or $0.14 in the same quarter a year ago. Revenue more than doubled to $20.4 million from $8.3 million, shares rose $15.16 or 11.43 percent to 151.5.

Elsewhere in earnings news, Sapient Corporation (SAPE) reported it earned $0.23 per diluted share. Analysts had expected the company to earn $0.20 per share. The company was also boosted by an announcement of a two for one stock split and bullish comments by Paine Webber. The brokerage firm raised its full year 2000-profit estimates to $0.91 from $0.81, and 2001 estimates to $1.22 from $1.18. Shares ended up $16.94 to $120.81, on volume of nearly 5 million shares.

In other stock news, Vignette Corporation (VIGN) climbed $6.06, or 21 percent, to $35.13 after the e-business builder announced a number of deals since the close on Tuesday. First, the company announced a pact with Motive Communications, in which Motive would be integrating its products into Vignettes. Next, consulting firm Arthur Anderson announced a global alliance with Vignette to provide their customers with Internet services. Lastly, Blue 292, a business-to-business portal for environmental, health and safety products, said it has chosen Vignette's products to further enhance the e- marketplace.

Also making headlines, Hewlett-Packard (HWP) surged on the news that it would be joining forces with fellow INDU component AT&T (T). The companies agreed to develop new ways for global companies to address networking and management needs of e-businesses. Hewlett-Packard closed up $4.63 to $112.50, while AT&T closed down a $1.00 to $31.00.

Meanwhile, Ariba (ARBA), which provides technology that allows business-to-business transactions via the Internet, said it has won a contract with Lucent Technologies (LU) to supply its services. Under an 18-month licensing agreement, Lucent will use the Ariba Buyer system, which will provide Lucent employees with a Web-based system to order non-manufacturing related goods and services worldwide. Ariba climbed $1.81, or 1.60 percent, to close at $114.81.

Dell Computer Corporation (DELL) took a hit today, as shares fell 4.8 percent when an analyst said the PC giant might miss its sales-growth forecasts. The shares fell 2 points to $39.56. More than 47.8 million changed hands, making Dell the most actively traded stock in U.S. markets. The stock is down nearly 22 percent this year.

Good news again emanated from the oil services sector, as strong performances by Smith International (SII), Rowan Companies (RDC) and Schlumberger (SLB) lifted the Oil Service Index (OSX) to $119.86, up 1.54 points. Mentioned in our commentary yesterday, The American Petroleum Institute (API) reported an unexpected shortfall in their estimates of oil reserves and this announcement did indeed drive this sector higher today.

Meanwhile, retail giant Gap Incorporated (GPS) announced that second-quarter earnings will miss Wall Street estimates due to weak July sales. Analysts expected the company to earn 23 cents, but the San Francisco-based retailer said results would fall shy of estimates by 2 to 3 cents. GAP shares closed up 0.94 to $37.94.

Looking ahead, investors are hoping to gain direction from the much-awaited jobs report, released on Friday. Along with these numbers, the Fed will announce the results of the FOMC meeting. Hopefully, these two economic announcements will help the market to be more forthcoming in its direction.

Good Luck! And remember not to fight the market trend.

M Fairbourn
Research Analyst

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