from Netbulls.com
Is The Fed Paying Attention?
For those of you who thought the end of tax-loss selling meant
the end of the pain, think again. Both the Dow and NASDAQ
continued their downward ways to start the New Year, with the
blue chip index losing 141 points to 10,646 and the tech-heavy
COMPX giving back 179 points to 2,292. After booking its worst
year since inception, you'd think the NASDAQ would have come out
of the chute firing on all cylinders. Apparently, folks don't
think the worst is yet behind us. Instead of optimism regarding
the hopes and opportunities for 2001, technology investors
received yet another spate of downgrades, this time the focus was
on Internet infrastructure players.
Robertson Stephens analyst Dane Lewis, before the open, lowered
his rating on storage bellwether EMC Corporation (EMC) from Buy
to Long Term Attractive, citing a slowing in infrastructure in
the first and second quarters. EMC, however, was not their sole
whipping boy. Lewis also knocked shares of Inktomi (INKT),
Verisign (VRSN) and Veritas Software (VRTS). Inktomi, in
particular, received a downgrade last Friday from Bear Stearns,
who were surprised at the rate of order slow downs for the
infrastructure sector. To add salt to the wounds, Merrill's
Henry Blodgett, in his infinite wisdom, and AFTER the Robbie
Stephens call today, lowered his opinion on INKT to NT-Accumulate
from NT-Buy. Brilliant! Carnage in these first-tier names
trickled down to secondary issues such as Infospace (INSP:-
12.3%), VerticalNet (VERT:-15.5%) and Earthweb (EWBX:-9.3%).
Needless to say, the AMEX Internet Index (IIX) received quite a
beating, losing 12 percent to 246. Web software developer
Macromedia (MACR) dropped more than 11 percent after Salomon
Smith Barney lowered their rating to Outperform from Buy. Shares
of the San Francisco-based firm ended at $54.03.
The Stephens downgrade not only impacted infrastructure stocks,
but networking chip and equipment issues as well. Shares of
Cisco Systems (CSCO:-12.9%), Redback Networks (RBAK:-16.9%),
Brocade Communications (BRCD:-17.8%), Broadcom (BRCM:-9.4%) and
Juniper Networks (JNPR:-18.6%) all fell after the bleak report.
The NASDAQ 100 (NDX) finished the day down 9.1 percent at 2,128
and the AMEX Networking Index (NWX) gave back 10.1 percent to
656.
Checking out the blue chips, the Dow finished the first day of
2001 with a loss, though the percentage decline wasn't nearly as
great as the NASDAQ. Breadth in the Dow favored the decliners,
with losers beating winners 18-12. On the broader NYSE, it was
the same situation, as losers eclipsed winners 17-13. NYSE new
highs outpaced new lows 164-22, even though down volume was
almost triple that of up volume.
If you were holding four-letter stocks today, you were probably
uttering four-letter words today as well. The arrival of a new
trading year apparently gave tech investors little reason to buy,
as the pillaging continued for the NASDAQ. The COMPX gave back
179 points, or 7.2 percent, to 2,291 by day's end. After opening
at 2474, the COMPX was below 2400 within a half hour. By 11 a.m.
EST, the tech-smattered index was down more than 100 points,
touching 2305 intra-day. If there was any argument for closing
early, today was one. It didn't really matter what area of
technology you were betting on today, you likely ended the day
down when the closing bell rang (if you were long, that is).
Practically all optical, telecom and biotech issues dropped.
Of the NASDAQ 100, the biggest percentage losers included TMPW
(-25.7%), VRTS (-24.5%), ITWO (-20.5%), NTAP (-20%), INKT
(-18.5%), ADBE (-19.7%), CHKP (-17.3%), VRSN (-16.7%) and EXDS
(-17.2%). Particularly worthy of note was Cisco Systems (CSCO),
which lost $4.94, or 12.9 percent, to $33.31, a market cap loss
of almost $35 billion. The semiconductor stocks had a chance to
buck the trend, but lost steam in the afternoon, ending down 1.1
percent to 570. Specific issues on the plus side included AMAT
(+3.4%), AMD (4.1%), KLAC (+1.3%), and INTC (+3.3%). But it
wasn't all green arrows for the chips. Morgan Stanley Dean
Witter lowered its rating on integrated circuit maker Analog
Devices (ADI:-8.2%), echoing that growth in the semiconductor
sector is expected to be only 20 percent, down substantially from
last year's 31 percent jump.
Breadth on the NASDAQ was decidedly negative, with decliners
beating advancing issues 23-16. Volume was average, as 1.7
billion shares exchanged hands. Down volume was three times
greater than up volume. New lows trounced new highs by a margin
of 131-52.
Looking at some of the broadest measures of the market, the S&P
500 Index (SPX) finished the day down 2.8 percent at 1,283, the
small-cap Russell 2000 (RUT) ended down 4.3 percent at 463 and
the Wilshire Total Market Index (TMW) closed Tuesday at 11,763.
On the economic front, the National Association of Purchasing
Management (NAPM) index fell to 43.7 from November's 47.7
reading, the lowest level since the recession during 1990-1991.
The reduced spending is a direct reflection to the inventory
build up that has occurred since the FED ended its series of
interest rate hikes in June of 1999. Anything below 50 indicates
a decline in overall manufacturing activity. Just for a little
perspective, the NAPM number has been below 50 since August of
2000. All I can say is that January's expected rate cut won't be
a moment too soon.
Closing Comments
What a way to start the year. This morning, Robertson Stephens
comes out with yet another obvious call. IT spending down in the
1Q and 2Q of 2001.what a revelation! Weren't we hearing about
this "slowdown" six months ago? In addition, if the environment
is going to be so difficult, why were the downgrades so small,
from Strong Buy to Buy and from Long-Term Buy from Long-Term
Attractive? And investors wonder why 80 percent of fund managers
can't beat the market. I guess those innumerable downgrades and
80-90 percent share-price declines weren't a big enough hint.
In my humble opinion, Robertson Stephens made the call as an
opportunity to grab shares of these high-flyers at cheaper
prices. While the tax loss selling continued today (this time to
defer any tax bills until April 2002), there were a few beaten
down stocks that investors were starting to buy.
Checking out the chart on the Dow, it looks like the blue chip
index is headed south. After five straight sessions to the
upside, the DJIA rolled over after coming within 30 points of
pushing past resistance from 12/5 (10,898). A break below
support at the 200-dma (10,731) could mean a trek back down to
its lower Bollinger band (10,337), a drop of around 4 percent.
Regarding the NASDAQ, as long as the downgrades continue to have
such an impact, at least judging from today's action, it's going
to be an incredibly difficult environment for technology. At the
end of last year, it seemed that analyst downgrades were having a
reduced effect on stocks due to the beating they had already
taken. Like we mentioned earlier, tax loss selling for April
2002 could further delay the early-year recovery investors were
hoping for. Regarding the chart, the only support left for the
COMPX is the lower Bollinger band at 2217, just 74 points from
current levels.
Until the FED steps in (21 days and counting), plan on more rough
waters and plenty of volatility.
Sun Microsystems SUNW $25.44 -2.44 (-2.44 this week)
Bearish comments from several analysts about technology in
general and not SUNW broke put investors into a selling mood.
Given the steepness of the market decline Sun Microsystems
stock held up well. Even so this was not sufficient to prevent
Sun from setting a new intraday 52-week low of $25.06. As one
of the few companies in the PC server sector to not warn of
weakening profits, today's action must be considered to be a
move in sympathy with the group and not the company. Although
macd and stochastic indicators are weak, the move today was on
below average volume suggesting that a bottom is in sight.
The new low should provide a fair amount of support. Set your
protective stop loss at $24.88 in the event this down turn
picks up momentum. Longer-term investors looking for a great
company at a bargain basement price could consider setting a
looser stop according to their tolerance for risk.
Picked on December 26th at $30.31
Gain since picked (4.87)
Earnings Date 01/17 (Not Confirmed)
members.netbulls.com
NEW BEARISH PLAY
BEA Systems Inc. BEAS $53.13 -14.19 (-14.19 this week)
BEA Systems Inc. is a provider of e-commerce infrastructure
software that helps companies of all sizes build e-commerce
solutions. BEAS has held up better than many tech stocks in the
past six months. Lately, even those that had been strongest are
falling it seems, as the bears go off in search of their next
victim. Most of the news surrounding the company of late has
been positive. The stock was added to the NASDAQ 100 on December
18th. On December 22nd, BEAS placed second on Interactive Week's
list of "Fast 50" companies. The company has also been able to
avoid most analyst downgrades as well. Robertson Stephens'
downgrade of the entire Internet infrastructure sector on Tuesday
came as a blow to BEAS however, despite not being mentioned
directly by name. Concerns over deeper than expected cuts in IT
spending spell trouble for companies selling infrastructure
software. While BEAS is more highly regarded than some in its
sector, the company has yet to show a profit. Investors are
becoming more value-oriented of late, with little use for both
high-PE and unprofitable companies. BEAS makes our bearish play
list tonight following today's 21 percent drop in price, and
subsequent technical breakdown. Volume in today's trading was
16.6M shares, well above the ADV of 10M shares. Tuesday's
closing price of $53.13 violated two key technical indicators;
the 25-dma at $66.50 and the 200-dma at $56.60. Both of these
points will prove to be resistance for the stock on any attempts
to rebound. BEAS has support at $47, and if that price level
fails to hold then the next level of support is at $40. We ask
that you monitor our "In Play" section for additional updates on
BEAS going forward.
Picked on January 2nd at $53.13
Gain Since Picked 0.00
Earnings Date 02/22 (Not Confirmed)
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