RECAP & STOCKS TO WATCH FOR WEDNESDAY, 12- 20-00
“All Hail Alan Greenspan!” turned into the “The Grinch Lives!” as the Fed gave Wall Street it’s expected shift to
a neutral bias, but left a big lump of coal by leaving short-term interest rates unchanged. While the markets should have only expected a bias shift, the inaction of the Fed will now stir up fears that the U.S. Economy is headed into a recession. The Nasdaq and Dow, which were bid up before the announcement, setting us up for a “buy the rumor, sell the news” scenario, sold off sharply after the Fed’s actions (or inactions) were released.
Tech stocks were also weighted down by Ciena Corp (CIEN), which fell about 24% after the optical network equipment maker announced it was buying privately-held Cyras Systems, Inc. for $2.6 billion in stock, a deal expected to cut into Ciena’s 2001 earnings.
After the closing bell, an earnings warning from Foundry Networks (FDRY) caused traders to hatchet the stock in half and also to attack the stock of competitor Extreme Networks (EXTR).
The Nasdaq Composite fell on the Fed news to its lowest point in 16 months, and finished with a 112- point loss to close at 2,511. Volume was a heavy 2.3 billion shares, with 84 stocks making new highs compared to 481 new lows. Blue chips had their parade rained upon as well, and after trading positive most of the day, the Dow lost 61 points to finish at 10,584. Volume on the Big Board was 1.3 billion shares, with 229 stocks making new highs compared to 116 new lows.
From a technical standpoint, crucial support on the Nasdaq stands at 2500, and resistance stands at 2750 and 3000. On a daily basis, the Nasdaq is still possibly forming an inverted head and shoulders, and/or a double bottom, which are both bullish signals. If the pattern were to form, the target for the index would be in the 3400 area. Fundamentals may outweigh this scenario, especially with only a few days left for tax loss selling. The next few days will be crucial.
Chart of the Nasdaq Comp: tradewindsonline.net
Although the Nasdaq took out the lows of Nov 30, many of the momentum favorites are still trading higher than their Nov 30 lows. We will continue to monitor market conditions, and will be looking for shorting opportunities on these stocks on further weakness in the Nasdaq. The list of stocks we are watching will be given to members in the Trading-Pit on Wednesday.
Earnings Spotlight: This week’s remaining earnings reporters include Micron Tech (MU), Palm, Inc. (PALM), Research in Motion (RIMM), and Micron Electronics (MUEI) on Wed., and 3Com Corp (COMS) on Thur.
Foundry Networks (FDRY): Company warns for Q4; sees EPS of $0.11-0.14; current EPS estimate is $0.24. Company anticipates fourth quarter net revenue of $100 million to $110 million. Stock was halted and traded down 50% after reopening.
Extreme Networks (EXTR): Stock was crushed after hours on FDRY warning, trading down 14 from market close. Other stocks being pressured by FDRY included Cisco (CSCO), Juniper Networks (JNPR), and Redback Networks (RBAK).
Applied Micro Circuits (AMCC): Company will replace J.P. Morgan (JPM) in the S&P 500 Index after the close of trading on Friday, December 29.
Embarcadero Tech (EMBT): Company announces it has extended the lockup of 19.7 mln shares for almost a year beyond current agreements. Under the new agreements, only 2.4 million shares will be released February 13, 2001, with an additional 2.4 million shares released on each of April 30, 2001, July 2001 and October 31, 2001. On January 31, 2002, all remaining restricted shares shall become unlocked. |
