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daily08-04-99's DAILY BULLETIN

August 5, 1999

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Market Data as of Close, 8/4/99:

o Dow Jones Industrial Average: 10,674.77 down 2.54, -0.02%

o Nasdaq Composite Index: 2,540.00 down 47.99, -1.85%

o S&P 500: 1,305.33 down 16.85, -1.27%

o TSC Internet: 489.91 down 29.16, -5.62%

o Russell 2000: 429.70 down 6.58, -1.51%

o 30-Year Treasury: 88 13/32 up 25/32, yield 6.112%

Companies in Today's Bulletin:

Yahoo! (YHOO:Nasdaq) (AMZN:Nasdaq)

eBay (EBAY:Nasdaq)

Neuberger Berman

In Today's Bulletin:

o Market Features: Off With Their Heads! (And Shoulders!) Net Charts Get Nasty
o Wrong! Rear Echelon Revelations: The Bottom Fishing Begins
o Evening Update:, Neuberger Berman File for IPOs; Three Deals Are Priced
o Bond Focus: Thirty-Year Bond Shines While Others Rust

Also on

Semiconductors: Fairchild Semiconductor, Mother of All Chip Companies, Goes Public

The company managed to post a 1.4% gain in its debut on a bad day for tech stocks.

Eye to the Keyhole: A Little Smoke and Mirrors Sends Laidlaw Stock Soaring

Wily stock tricksters create a $400 million juggernaut.

Truth Serum: Chasing Barren Barron's Rumors

Chatter that someone is going to get blown up by the weekly paper isn't as reliable as it sounds.

Europe: France Piqued as Foreigners Decide Bank Takeover

Investors in a vicious three-way bank battle are hampering the government's search for a French solution.

Market Features: Off With Their Heads! (And Shoulders!) Net Charts Get Nasty


Justin Lahart

Senior Writer

The charts of Internet stocks are on the verge of completing a head-and-shoulders pattern -- the most well-known of bearish technical patterns. For any sector, that would be bad news. For the dot-coms, it's worse than that.

In the world of Internet stock trading, where momentum is king and Graham & Dodd are forgotten gods, what the charts look like has an outsized importance. And this makes sense. In the absence of such mundane things as P/Es, Net analysts spin a voodoo out of page views and eyeballs to justify ever-increasing valuations, stocks begin to matter more than the companies they are named after -- in short, things have gotten a tad speculative. In a this environment, technical analysis, which seeks to interpret the psychology of a market from the way it trades, can work very well. This doesn't go unnoticed by the players in the market, who begin to trade on the technicals -- making them even more important.

That wasn't so bad on the way up -- in fact, it may have even given legs to the move -- but with the development of head-and-shoulders patterns in several Internet blue-chips, technicians are hanging crepe on the dot-com charts.

Standing on the Shoulders of Giants ...
Yahoo!, nine months

The classic head-and-shoulders pattern is defined by three peaks, with the middle one rising above the ones that flank it. The troughs of the two peaks define the neckline.

Explains noted technical analyst John Bollinger, president of

, "The classic head-and-shoulders pattern is defined by very strong bullishness on the left-hand side of the pattern." A short-term correction follows, after which there is a resumption of bullish psychology that leaves behind the left shoulder and starts the head. As the stocks peak at a higher level, cagier investors begin to scale back.

"You get a more serious correction as the so-called smart money begins to distribute the stock to weaker hands," he goes on. "That brings the stock down to where the first pullback occurred, completing the head." From the neckline, bargain hunters come in -- not realizing that there's been a fundamental change. The stock peaks and sells off again. When the neckline is pierced, the pattern is complete. When that happens, the rule of thumb is that the stock will fall again the distance of the head to the neckline before bottoming.

... Leaves ..., nine months

The bad news is that many major Internet stocks are at the neckline right now.

"I'm afraid the story is not optimistic here," says Bollinger. "The test of support looks like it's going to fail, leaving behind those well-defined head-and-shoulders patterns."

How bad can it be? Bollinger says take a look at



, whose chart broke through a neckline support at 135 early last month. Today, it's at 75 3/4. And there's no sign of a bottom.

... Me ...
eBay, nine months

Bollinger does point out, however, that with so much bearish evidence piling up, from a purely contrarian point of view, a bullish case is mounting. But it does not make sense to buy, he adds, until the selling stops. That hasn't happened yet.

"We're at critical support all over the place," says Robert Dickey, managing director of technical analysis at

Dain Rauscher Wessels

in Minneapolis, "and that's true with the indices along with a lot of the Internet stocks. The most recent declines on these guys have been relentless, and we won't see the bottom until we see some real capitulation. Something like a margin call."

At that point, when fear is at its highest, the bottom will come, says Dickey. It will be obvious -- yes, they really do ring a bell at the bottom. "A lot of people will see it," says Dickey, "but very few will have the guts to buy."

... Cold Internet Sector, nine months

Wrong! Rear Echelon Revelations: The Bottom Fishing Begins


James J. Cramer

One thing is certain, we won't get an end to this selling with these crazy higher openings. The pattern where we open higher and then fail is simply deadly. It has never produced a tradable bottom that I know of.

We need to have the market open flat and then go right down, or, even better, start way down and then rally. The latter is the textbook bounce that I am waiting for. Everything else just seems to prolong the inevitable.

We did some selling near the end of the day as well as some shorting, hoping that we would get that kind of cathartic selloff soon, but maybe that's almost too-wishful thinking.

A slamdown opening, with everyone puking up every single last Net stock, would normally be how a turn could occur. That's why I focused on the true problem here: The newer trader's innate inability to take a loss and move on. Many of the people who have bought stocks in the last year are used to buying dips. That works only if the selling reaches a climax and everyone who wants to sell has sold.

But with these Net stocks, people don't want to sell until they have to. That's why you get disorderly runs on stocks. I keep harping on

margin selling because when I see stocks go down in the last half hour of trading, it reminds me so much of what I used to have to do to clients who didn't get the collateral in when I was a broker. I would have to sell with all my might because all I was trying to do was raise cash, any cash, to meet the repo man. I only had a couple of clients who borrowed money, but they all got crushed at one time or another, which led to the type of forced selling I saw in the last half hour today. After the close today one thing had changed. People who are not in the sector -- fund managers, e-mailers, fellow travelers -- have begun to talk about which Net stocks may be doing well that have fallen so much that they are actually cheap.

Unfortunately, the ones I am looking at to buy are small cap. I will not use this forum to talk about them. Suffice it to say that stocks that are down 50% to 70% from their highs, that are through the offering prices, and that are not burning cash at a furious pace and have good money in the bank are all being considered by my fund to be excellent possibilities.

But we have bought nothing yet. We have to do work. We have to call analysts. We have to see if we can get meetings with managements. We have to look at the products, get the word about whether the brands have reach and the companies are having a good quarter.

Bottom fishing, true bottom fishing, requires the patience of the fluke fisherman when they aren't biting. It takes time. You have to get it right because the kinds of stocks we are talking about have no liquidity and can't be gotten out of if we make a mistake, without wrecking the prices with our own exit.

Nevertheless, to not do this is plain stupid. When there is forced sloppy selling by margin clerks and brokers, that is opportunity to sink your teeth into the next great







Oops, make that





James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

Evening Update:, Neuberger Berman File for IPOs; Three Deals Are Priced


Eileen Kinsella

Staff Reporter

The scary reception that a number of IPOs got in recent days hasn't frightened away the next bunch of up-and-comers.

, an online job recruiter, said it hopes to raise $69 million in a 4.75 million-share offering with shares priced in a $12 to $14 range.

Deutsche Banc Alex. Brown


BancBoston Robertson Stephens


SG Cowen

will underwrite the offering.

Less than a year after it abandoned the notion of going public,

Neuberger Berman

has officially changed its mind, filing with the

Securities and Exchange Commission

for a $250 million offering of common stock which will be underwritten by

Goldman Sachs

. The firm's principals voted late last month to sup at the public trough.

In other IPO news:

Interactive Pictures'

(IPIX:Nasdaq) offering of 4.2 million shares was priced at $18 a share, the top of the range, through

J.P. Morgan


Internet Capital

(ICGE:Nasdaq), which has interests in 35 e-commerce businesses was priced at $12 a share with 14.9 million shares, through

Merrill Lynch

; and


(CBLT:Nasdaq), which manages Web sites for clients with new vehicle franchises, had 4.5 million shares priced at $11 through Robbie Stephens.

In other postclose news (earnings estimates from

First Call

; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews

Comfort Systems


reported second-quarter earnings of 37 cents a share, in line with the 12-analyst estimate and up from 28 cents a year ago. The company said all figures were given on a pro forma basis, retroactive to January 1998, and based on a pooling of results of companies it has acquired.

Lazare Kaplan


reported fourth-quarter earnings of 8 cents a share, beating the single-analyst estimate of 4 cents. The company said the year-ago figure of 36 cents included a gain from the sale of a company plant in Botswana. No per-share operating figures were provided for the year-ago period.

Pegasus Communications


reported a second-quarter loss of $2.48 a share, wider than the three-analyst expectation of negative $2.38 and the year-ago loss of $1.59. Still, Deutsche Banc Alex. Brown initiated coverage of the company with a buy rating.



reported second-quarter earnings of 10 cents a share, beating the seven-analyst estimate of 8 cents, but lower than 24 cents a year ago. The company said the figures reflect a 2-for-1 stock split in June 1998.



reported second-quarter earnings of 32 cents a share including special charges. No per-share operating income figures were provided. The seven-analyst estimate called for 31 cents. The year-ago figure was 24 cents.

Waste Industries


reported second-quarter earnings of 23 cents a share, in line with a five-analyst estimate and up from a pro forma figure of 20 cents a year ago.

Watson Pharmaceuticals


reported second-quarter earnings of 43 cents a share, in line with the nine-analyst estimate and up from 35 cents a year ago. The company said it would launch sales of generic nicotine gum in the third quarter.

Mergers, acquisitions and joint ventures



sniffed around


today and then decided to buy it for $55 million -- $40 million in stock and $15 million in cash. Go2Net said Dogpile, which operates an online meta-search service, would be used to add new advanced search features to its online network.

Like a trendsetter at a sample sale,

Wells Fargo


has been doing some serious shopping lately. It purchased

First Place Financial


for $175 million in stock and said the move would help elevate its presence in New Mexico and the southwest in general. Last Thursday, the company started the spree by putting Texan

Prime Bancshares


into its shopping cart for $242 million in stock.


Trucking magnate

RDO Equipment

said it began talks with bankers Deutsche Banc Alex. Brown to explore options for its trucking rental business. In a statement, the company said alternatives include shipping away

RDO Rental

, an 80%-owned subsidiary, or linking up with a possible joint venture. Company officials said they'd use any net proceeds to help the company keep on truckin' and reduce interest-bearing debt and strengthen liquidity.

Where there's smoke there's fire, so it makes perfect sense that



would eventually get burned with fines stemming from a Feb. 23 explosion, which killed four people at its Avon, Calif., refinery. After an investigation, California state safety officials torched the company with a record $810,750 fine for 33 alleged violations of workplace safety regulations. The fine is the highest California regulators have ever levied against a single employer.

Editorial assistant

Eric Gillin contributed to this story.


Bond Focus: Thirty-Year Bond Shines While Others Rust


David A. Gaffen

Staff Reporter

If bonds were a horse race, today the 30-year bond was


. But the rest of the Treasury market was

Mr. Ed


This morning the


announced it would eliminate the sale of the 30-year bond at its November quarterly refunding auctions. Diminishing supply increases the relative demand for bonds, and the market seized on this, rallying the 30-year bond over a point before it backtracked later in the day.

Lately the 30-year bond was up 25/32 to trade at 88 13/32, dropping the yield by 7 basis points to 6.10%. Meanwhile, the five-year note was up a lowly 4/32 and the 10-year note rose by 6/32. The 30-year bond hit its high of the day of 88 22/32 at 10:21 a.m. EDT before sliding.

For the last several years, the government's borrowing needs have declined due to larger-than-expected tax receipts and a decrease in overall spending, and the Treasury has reduced the size of its quarterly and monthly sales of debt. (This fiscal year, a government surplus of $99 billion is forecast; in 1992 the deficit was $290 billion.) Thirty-year bond sales took place once a quarter, until the government in 1992 stopped selling the long bond at the May refunding.

The market expected the Treasury to announce the elimination of another 30-year sale, but they didn't think it would be


year, so it was a welcome surprise. Reducing the federal debt, over the long term, creates more competition for the existing debt, raising prices and lowering bond yields. It also results in lower borrowing costs for consumers and companies.

"There's a long-term story and a short-term story," said Bill Hornbarger, Treasury market strategist at

A.G. Edwards

. The rally "was an acknowledgement of that long-term

benefit but we've got to get through the next few days."

The full extent of today's rally didn't take, Hornbarger said, because right now the market's still worried about the potential for the


to hike the fed funds target rate, and its next clue is going to be Friday's

employment report


"Friday's going to be a big day," said Richard Schwartz, portfolio manager at

New York Life Asset Management

. "It's going to set the tone for the market's direction for the near term, at least until the 24th when the Fed meets."

Several sources believe that if this report is merely in line with


consensus estimates, which call for a 200,000 gain in new nonfarm payrolls and a 0.3% increase in average hourly earnings, that'll be enough for another rate hike. Due to the continued strength in economic data, many believe the Fed will raise the fed funds target rate to 5.25% from 5% on Aug. 24, and that it will take a weak employment report to perhaps dissuade the Fed at the end of the month.

"Shorter term, people are still more focused on the Fed and that's why we sold off when we hit the highs," Hornbarger said.

An early morning announcement that Treasury Secretary

Lawrence Summers

would be attending the refunding press conference got the market abuzz. (These announcements are darn mundane, so the appearance of Summers sent up a red flag.)

The Treasury said it will sell $15 billion in five-year notes, $12 billion in 10-year notes and $10 billion in 30-year bonds next Tuesday, Wednesday and Thursday. Summers showed up to announce that the Treasury is exploring buying back older Treasury debt, which would allow it to sell more current debt, improving market liquidity.

The Treasury hasn't conducted buybacks since

Richard Nixon

was president, but it's become necessary because the Treasury wants to help ensure liquidity. Liquidity, or the ability to trade securities quickly and easily, is best facilitated through large sales of debt. Buying back older, higher-yielding issues to issue new, lower-yielding ones will keep the Treasury from reducing current auction sizes and impairing liquidity, which also helps keep borrowing costs low. In recent years, the Treasury has shifted five-year auctions from monthly to quarterly, and eliminated the sale of three- and seven-year notes.


Street Sightings

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