Focused On Fiber

Fiber-optics companies have grabbed the headlines this week, but the company in the news today has been dealing in fiber since 1906. No, not the kind of fiber that conducts pulses of light, but the type of fiber that, well, you know, keeps you "on schedule". Kellogg's (K) the biggest and one of the oldest names in dry cereal sweetened its line of products today when it announced it would buy the cookie giant, Keebler (KBL), in a $3.7 billion deal.

This is not the kind of deal talked about around the water cooler, but it is significant to Keebler, which will now be included among the big league players of the food producers. The deal is valued at $42 a share, only a slight premium over yesterdays closing on KBL. Keebler closed up $1.06 or 2.7%, to $40.44 on today's session. Kellogg's gets a much-needed boost in the fast growing snack food segment by acquiring Keebler, hopefully making up for its core cereal business, which recently has been soggy at best. Kellogg's finished up $1.56 or 6.8% to $24.31.

The fiber optic stocks, on the other hand, have seen their market caps shaved this week, pushed over the edge on Tuesday by Nortel's (NT) revenue report. They were the scapegoats for the NASDAQ pullback and bled red over much of techland. Anything having to do with broadband, fiber optics or data management took a hit, with semis and networking stocks joining in for the ride.

This morning saw the well known fiber optic stocks like Ciena (CIEN) -$5.38, Corning (GLW)-$6.88, JDS Uniphase (JDSU)+3.44 and SDL, Inc.(SDLI)+6.38 looking for the exits. We saw a heroic turnaround into the close in all these names, with hardly a lick of profit taking before the bell.

In fact, looking at all the tech generals (CSCO, EMC, SUNW, ORCL, INTC et al) we see the same pattern of a stellar close. Some big players took some stock home tonight, which is a good sign. It will remain to be seen if they give it all back on any rallies, as they have been for the past 2 months.

A shift in the red tide may, may, may have come tonight as JDS Uniphase reported earnings of $0.18 a share, beating expectations by $0.02. But, more importantly, our neighbor to the North reported revenues of $786 million as opposed to estimates of $755 million. The stock traded in choppy fashion in after hours action, on both sides of today's close of $74.44. Much more will be divulged in the conference call and as we all know, all ears will be tuned into the company's guidance going forward.

Thursday's Happenings:

Turning to the major indicies, the NASDAQ (COMPX) was pulled over today for banking a U-turn without signaling. The index plummeted in the morning, came within 50 points of testing the October 18th low of 3026, then turned and rocketed higher, to close up 42.61 or 1.321%, at 3272.18. After being down more than 145 points, the turnaround that came at around 2:30 p.m. est, was quite impressive. Nasdaq volume registered a healthy 2.3 billion. The advance, though impressive, was mostly due to the big caps throwing their weight around. Proof of this can be seen in the a/d numbers. Decliners actually edged out advancers 1987 to 1918.

The Dow (INDU) experienced a similar day, although less decisive. Traders took the DOW higher in the morning, lower by midday, rallied it along with the NASDAQ, then decided enough is enough and sold it off into the close. The DOW finished up 53.64 or 0.52%, to close at 10,380.12. The techs within the DOW chipped in more than their fair share towards the DOW's gains on the day, with Intel (INTC) up $3.38, Microsoft (MSFT) up $3.19 and IBM up $5.19. Contributing to the drag on the DOW were Citigroup (CI) off $1.63, American Express (AXP) off $2.94 and Wal-Mart (WMT) down $2.50. Volume on the Big Board was almost 1.3 billion shares and advancers managed to beat decliners by 1455 to 1394.

The broader market did not fair as well on the day with the S&P 500 finishing basically flat, or down 0.47 to 1364.43.

Treasuries reacted to a positive Employment Cost Index report this morning. The ECI (a measure of wages, benefits and salaries) rose 0.9% in the third quarter as opposed to estimates of a 1% rise. The increase was the smallest in a year, giving still more proof that the rate hikes and the "soft landing" being orchestrated by Fed Chairman Greenspan may be working. The 30- year bond finished up 8/32, its yield moving in the opposite direction to close at 5.73%. The benchmark 10-year closed down 1/32 to yield 5.69%. Credit futures markets have now priced in a 50% chance that interest rates will actually be lower near the being of 2001. However, nobody is going to bet too excited until the Fed removes its bias towards fighting inflation. The next Fed meeting is November 16th.

Sectors and Stocks On the Move:

The telecomm sector (IXTC.X) put investors on hold today, with WorldCom (WCOM) falling another $3.50 to $21.75. The stock has been steadily falling all year and was pushed lower today on revenue worries. Nextel Communications (NXTL) also cratered after reporting a narrower loss in earnings, but mentioned simultaneously that new subscriptions would not meet estimates. The stock finished down $7.31 to $28.81.

When the market is feeling sick, what other sector comes to the rescue but the Healthcare group (HCX.X). Although, it finished just about flat on the day (-2.01), it has held up amazingly well. Looking at a long term chart going back to 1995 shows that this sector traditionally tanks in the second half of the year. This is because up until this year, price increases have not stuck. This year, higher prices for drugs and services are hanging tough at higher levels, boosting margins and profitability for this now high-flying sector. Stocks like Unitedhealth Group (UNH) +$2.94, Tenet Healthcare (THC) -$0.88 and Wellpoint Health (WLP)+5.44 have taken to all time lofty levels.

Looking Forward, Always Forward:

The action was positive on the day for both the NASDAQ and the DOW, but there are some potential clouds hanging overhead that could leave investors grabbing for their umbrellas going into the weekend. First is the Gross Domestic Product (GDP) coming out before the market open Friday. Estimates are for the GDP to have risen by 3.5%. Although economic reports have generally taken a backseat to debacles in the equity markets recently, this report shouldn't be ignored.

Next, we have the shake out from the JDS Uniphase conference call. We shall see if investors can be placated by the rosy fourth quarter guidance given by the fiber optic giant or if they have been hurt too badly and just don't want to come out to play.

We also have developments overseas in the oil patch and in Euro- ville that have the potential to shake up our already shaky markets. Iraq has indicated that it could halt oil exports if the United Nations does not comply with its request to trade oil in euros instead of dollars. The December crude contract finished up $0.75 to $33.71 a barrel.

The euro hit all-time low levels on Wednesday with one euro buying .8246 of a dollar. Thursday, the euro was up a little to .8256 of a dollar. Companies are starting to be more vocal about how the lowly valued euro is dragging down business. There have been no formal talks concerning the central bank's boosting of the currency like they did last month.

All that negativity aside, the markets look like they are poised to resume an upward move on some more choppy trade. With today's rally into the close, most big market players will want to see how much farther they can take some key stocks before selling pressures resurface. Also bullish is the fact that the NASDAQ put in a higher low in today's downdraft and also needs to fill a gap at around the 3400 level created by Wednesday's gap down in the morning.

Also good news is the nice bounce we are seeing in the Semiconductor Index (SOX.X). Semis make up such an important position within the NASDAQ, occupying a peripheral role in the wireless, optical, PC and electronics sectors, that we need them on board if the COMPX is to go higher from here. We will look for long term support at 656 to hold.

As always, keep those stops in place. Small losses in this choppy market will keep you in the game and your capital intact for when the market turns (and it eventually will). Likewise, don't be afraid to lock in profits too early. It's been tough to get good sustained runs in most of the sectors, so don't let those profits disappear. Good Luck and have a profitable trading day.

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