MARKET WRAP
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The Street Skids on Further Earnings Concerns
Wall Street suffered another disappointing session Wednesday, as
concerns of more disappointing corporate earnings filtrated
throughout the market. By day’s end, the majority of the major
indices finished in the red. Blue chip stocks cut many of their
losses late in the session, but still ended in negative
territory. Technology stocks were pressured by weak performances
in the Computer and Internet sectors.
Blue chip investors were let down as the Dow finished the session
down 2.96 points, or 0.03 percent, ending the session at
10628.36. Shares of Caterpillar (CAT) and Eastman Kodak (EK) led
the retreat as both stocks finished the session down more than
five percent. EK furthered Tuesday’s losses as Lehman Brothers
announced Wednesday that they have lowered their 2000 EPS
estimates to $5.15 and 2001 estimates to $5.50 from $5.55. Lehman
Brothers further stated, "We are maintaining our neutral rating
on the stock and believe there could be more downside risk from
here." As can be imagined, investors sold out of their positions
in EK causing the stock to finish out the session down $2.50 or
5.62 percent. All was not doom and gloom on the Dow as several
stocks managed to end the session on the upside. Leading the
advancers was Hewlett-Packard (HWP), which gained $4.63, making
it the top performing stock on the index. The chairman of the
company delivered a terse and confident message to Wall Street on
Wednesday about the computer maker meeting fourth-quarter
expectations. "We're on track for the quarter. We feel very
confident about the top line growth," Hewlett-Packard
Chairman Carly Fiorina said after giving a speech to Boston
College's chief executives club. Philip Morris (MO) also enjoyed
a strong session as well, advancing $1.25 or 4.44 percent.
Trading on the broader based NYSE was moderate, as 1.16 billion
shares traded hands. Advancers beat out decliners 14-13. New
highs were 83 versus 109 new 52-week lows.
A glance at the chart of the Dow suggests that the index is on
the verge of breaking through a critical support level at 10,600.
The DJIA actually broke through 10,600 intraday, but managed to
regain most of the loss earlier in the session. If the Dow is
unable to find support at 10,600 and violates this support level,
we could see the it retesting the next significant support level
at 10,400. Resistance is currently holding at the 200-dma
(10,813.66).
The NASDAQ suffered the brunt of the selling Wednesday causing
the tech laden index to finish out the session down 32.80 points
or 0.89 percent at 3,656.30. Leading the retreat south was
Priceline.com (PCLN), which fell $7.89 or 42.33 percent,
finishing out the session at $10.75, a new 52-week low for the
stock. Investors fled the stock after the company forecast
revenue of between $340 million and $345 million, not the $360
million to $380 million anticipated by analysts. The company said
a $20 million to $25 million shortfall in September airline
ticket revenue springing from a lower average offer price, and a
lower number of accepted offers was almost entirely responsible
for the sales disappointment.
After announcing the decrease in revenue, a few analysts
cut their ratings on PCLN, providing fuel for the fire. The
Priceline sell-off caused a ripple effect throughout the NASDAQ
and other Internet stocks. The worst hit was the "e-retailers"
including stocks like Internet portal Yahoo (YHOO), which fell
$12.06 or 11.76 percent, online retailer Amazon.com (AMZN) which
fell $1.88 or 4.72% and online auctioneer Ebay (EBAY), which fell
$7.19 or 10.17 percent. PCLN wasn’t the only culprit Wednesday,
as Motorola (MOT) contributed to the COMPX's decline for the
first part of Wednesday’s session. Shares of the stock fell to a
low of $27.25 early in the session, dragging many of the
communications stocks down with it. By session’s end, MOT managed
to regain most of its losses ending the session down $0.56 or
1.87%. ADC Telecommunications (ADC) traded in sympathy with MOT
and finished the session down $3.50 or 12.07 percent.
On the upside, 3Com (COMS) staged a strong performance Wednesday
after announcing narrower than expected loss late Tuesday.
Investors rewarded the stock by buying up shares of COMS causing
the stock to finish the session up $3.06 or 21.97 percent. Cisco
Systems (CSCO) also held strong Wednesday, gaining $2.13 or 3.85
percent.
Trading on the NASDAQ was fairly heavy as 1.94 billion shares
traded hands. Decliners beat out advancers 24-15,
as 258 stocks hit new 52-week lows, while only 77 stocks hit
52-week highs.
The NASDAQ, is for all intents and purposes, is in the same boat
as the Dow. The COMPX is on the verge of breaking through a key
support level, which in this case is 3,600. A break through this
level could cause the index to retreat to its next significant
support level at 3,400, or, if the selling continues, to retest
support at 3,200. Short-term resistance is holding at 3800.
The S&P 500 (SPX) fell 0.64, or 0.05 percent, finishing the
session at 1,426.57. The S&P 100 (OEX) finished up 1.76, or 0.23
percent, ending the session at 758.63. The Russell 2000 (RUT)
fell 1.76, or 0.35 percent to end at 508.13. The Philadelphia
Semiconductor Index (SOX) lost 5.95 or 0.68 percent to end the
session at 864.72.
In closing, the markets seem to be at a crossroads. Many of the
key indices are at or near the bottom of their trading range and
could break through their support levels if the current wave of
disappointing corporate earnings continues. If that was not
enough, the market is keeping an eye on the upcoming GDP and
Initial Jobless Claims report, which is due to be reported before
market open Thursday. Investors don’t seem to be in the mood of
accepting more bad news and if these economic reports, which are
due out Thursday, aren’t to the liking of the market, we could
see a further sell-off. Investors now have the challenge of
finding stocks that can weather the recent volatility caused by
disappointing earnings and weak performances in the Internet
sector. In the end, the successful traders will be those who have
spent the time and effort to shift through the myriad of stocks
to find those that can withstand the buffeting winds of
volatility.
Trade Smart!
Mike Fairbourn
Research Analyst
StockBottom.com
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