More Warnings and Analyst Actions

Companies threw more stones into the tech pond today, causing ripples that rocked stocks from shoreline to shoreline. Until we get more certainty in interest rates and in the presidential election, warnings and downgrades will unfortunately still effect innocent bystanders.

Today's undoing in the NASDAQ was this morning's warning out of Motorola (MOT). The wireless handset and chipmaker indicated that it would not meet revenue and earnings expectations for its fourth quarter due to a slowdown in the semiconductor industry and delays in cost savings associated with wireless handset production. It also mentioned that it is expecting to miss the first quarter's earning estimate. The only positive to take from MOT on the day was its stock performance. It actually clawed its way back from an initial plunge of $1.81 to close down only $0.06, to $17.75.

Not to be left out, National Semiconductor (NSM) announced at its second-quarter earning's release today that due to inventory problems, they would miss third-quarter targets. While beating second quarter earnings by $0.05 a share, NSM admitted that it is seeing a slowdown ahead and that sales may be weaker than expected. The stock finished the day off $1.13, or 5.63%, to $18.88.

The profit warnings out of the chip sector served to unnerve traders whose gumption was given a boost just two days ago from Mr. Greenspan. The record gains from Tuesday are all but gone, with the fact remaining that we are in a bear market where selling on any rallies remains in vogue.

Today's Markets:

The NASADAQ (COMPX) could not hold up under the weight of the aforementioned profit warnings but managed an orderly, if not mildly impressive sell off (if a sell off can be impressive). Although the index fell 43.85, or 1.57%, to 2752.65, it did so on lighter volume (1.7 billion shares) and most tech stocks actually climbed back from the morning doldrums. This may indicate that the bulk of the pain in technology shares has already been administered and that valuations are back to more acceptable levels.

Sellers also jettisoned DOW (INDU) stocks today, as the average fell 47.02, to 10617.36. The DOW gave back early gains as bank and retail stocks retreated late in the day. Volume on the NYSE came in at 1.1 billion shares. Surprisingly, advancers actually edged out decliners on the big board 1438 to 1384.

The broader market was also weak today with the S&P 500 falling 7.92, to 1343.54. Traders were indicating that it was a fairly lackluster day.

Treasuries recovered from early weakness to post small gains on the session. The benchmark 10-year note finished up 5/32 to yield 5.30%. The 30-year gained 7/32 to yield 5.49%. The moves might have been more dramatic if not for the monthly employment report due out at 8:30 a.m. tomorrow morning. Expectations are for a November jobless rate of 4% and hourly earnings to have risen by 0.3%.

Stocks and Sectors On the Move:

Microsoft (MSFT) found itself looking down the barrel of a Goldman Sachs downgrade today and promptly shed $3.56, or 6.3%, closing at $53.13. Goldman analyst Rick Sherlund cut Microsoft's earnings outlook for the year 2001 from $1.91 to $1.88 a share on evidence of slowing PC demand (this from the no-duh file). Although, Mr. Sherlund went on to explain that he cut estimates only slightly since most of Microsoft's business comes from the corporate side. The software index (GSO.X) actually held up relatively well under the strain of the downgrade, falling 7.96, to 322.87.

After Tuesday's stellar gains in the internet arena, Yahoo! (YHOO) made sure that the sector wasn't going too far too fast. It put a lid on the short-lived internet rally by becoming the unfortunate recipient of a downgrade by WR Hambrecht. The firm lowered its rating on the stock from a "buy" to "neutral", stating that investors should, "remain on the sidelines until the smoke clears."

Ciena (CIEN) actually had some good news come out of its fourth-quarter earnings release today. The fiber optic company earned $0.14 a share, beating estimates by $0.02. They expect their business to outpace the overall market going forward and went so far as to raise their revenue guidance. Other stocks in the fiber optic sector perked up on the news. JDS Uniphase (JDSU) moved up $1.38, to $67, Corning (GLW) was lifted by $1.81, to $71.56 and SDL, Inc. (SDLI) finished up $7.19, to $245.19.

I was hoping to finish on a positive note, but Intel (INTC) has come out after the bell to indicate that it expects fourth-quarter revenues to come in below expectations due to order cancellations. The semiconductor company said that it is anticipating revenues to be flat or within a "couple of percentage points" either way of third quarter revenue figures of $8.7 billion. We shall see if this already well-known problem has a material effect on tech stocks tomorrow.

Looking Forward, Always Forward:

Friday is shaping up to be a veritable witches brew of volatility. Add one part Intel warning, two parts potential election news out of Florida and three parts November employment figures and you have a concoction that I wouldn't touch with a ten-foot pole. Moreover, traders have been hesitant to hold positions over the weekends, adding additional selling pressures to the funky Friday fun.

The Splittrader.com Current Play list has been holding tough through the turmoil due to our conservative-by-default stock picking. The stocks currently emerging from bases and continuation patterns have still been banks, insurers, healthcare and drugs. In scanning the charts today, insurance stocks were the clear leaders. The Insurance Index (IUX.X) is making new highs after some healthy consolidation and looks poised to continue its run. Our Current Play list includes two insurance companies that are representative of the outperforming group, XL Capital (XL) and AXA Financial (AXF).

Another chart that popped out at me today was the January crude oil futures. We have seen a significant drop in oil prices within the last two weeks. Supply concerns are being assuaged by comments out of OPEC that they will indeed boost supplies to offset any effects from the Iraqi suspension in oil output. Lower oil prices mean less inflationary pressures, so we will keep an eye on oil to see if it drops to levels that may spark a rally in equities.

You will notice that a few technology shares are starting to seep into our Watch List. We believe we are in for a tradable rally in the NASDAQ and want to be ready with a few candidates. Along with the likes of Brocade Communications (BRCD), we like the B2B plays such as Ariba (ARBA) and BEA Systems (BEAS). However, they are both coming off of "V" bottoms, which do not often stick. Therefore, we will look for these types of stocks to base (move sideways) before adding them as a play. Just a heads up in case you are looking for some strong techs to add to the mix.

Good Luck and Book Those Profits Early!

Craig Seidler
Assistant Editor