May 27, 2000

Market Data as of Close, 5/26/00:

o Dow Jones Industrial Average: 10,299.24 down 24.68, -0.24%; down 3.1% for the week

o Nasdaq Composite Index: 3,205.11 down 0.24, -0.01%; down 5.3% for the week

o S&P 500: 1,378.02 down 3.50, -0.25%; down 2.1% for the week

o TSC Internet: 752.23 up 5.46, 0.73%; down 8.7% for the week

o Russell 2000: 457.37 up 1.20, 0.26%; down 4.7% for the week

o 30-Year Treasury: 102 20/32 up 23/32, yield 6.052%

Companies in Today's Bulletin:

Cisco (CSCO:Nasdaq)

Oracle (ORCL:Nasdaq)

eBay (EBAY:Nasdaq)

In Today's Bulletin:

o Market Features: How the Tech Mighty Have Fallen: Now Get Up and Lead the Way Out of This Mess
o Wrong! Rear Echelon Revelations: Selling the Rally
o Market Roundup: Traders Head Out of Town Early for Long Weekend; Stocks End Little Changed
o Market Features: What a Week: Waiting Out the Storm and Hoping for a Rainbow

Max Ansbacher, president of

Ansbacher Investment Management

, and Kenneth Schapiro, president of

Condor Capital Management

will be guests on "" on

Fox News Channel

on May 27 and 28.

Also on

Retail: Crunching the Growth Numbers at eBay

The stock has slid amid worries of slowing auction growth. But the picture's more complicated, the company insists.

Options Buzz: Options Action May Portend Mister Softee Rally

Active call-options play in Microsoft indicates optimism for the software giant. Buybacks in Tech Stocks Aren't Always a Sign of Weakness

MarchFirst shares have plunged since its creation by merger, and management has the cash to fund a buyback.

Hardware & PCs: Beleaguered PC Investors Search for a Catalyst

The stocks are off sharply in recent months, but analysts see no signs that will change soon.

Market Features: How the Tech Mighty Have Fallen: Now Get Up and Lead the Way Out of This Mess


Justin Lahart

Associate Editor

5/26/00 4:44 PM ET

Those well-known names that lie at the core of any growth fund portfolio you might care to mention -- the


(CSCO) - Get Report



(ORCL) - Get Report

and so on -- did not succumb to the tech selling as soon as their lesser peers. But when they did begin to drop in earnest, the decline was vicious.

It was, in short, almost a textbook selloff. When the

Nasdaq Composite first began to drop, it wasn't stocks like

Sun Microsystems

(SUNW) - Get Report

, but rather things like






that got taken out to the woodshed. In fact, the biggest tech stocks actually


during this period as spooked investors moved money into only the best-known, most-liquid names. So even though the

Nasdaq Composite

hit its top March 10, the total value of the top 10 stocks (by market capitalization) in the index actually kept growing after. Not until March 28 did the big stocks begin to turn lower.

O, How the Mighty

Source: Baseline; Research

Investors no longer viewed the problem as isolated to companies with no earnings and pie-in-the-sky expectations. There was something more systemic going on: Tech valuations in general had gotten ahead of themselves. For a few weeks in March, the mantra had been "high-quality tech," with some managers professing the belief that these stocks would hold well through the selling. From March 27 to a May 23 low, the total capitalization of the top 10 Nasdaq stocks fell to $1.74 trillion from $2.55 trillion. The declines in just 10 stocks had wiped $810 billion off America's portfolio, and nobody was intoning that "high-quality" stuff anymore.

Depressing as this is, it also suggests that the Nasdaq has found, or is very close to having found, its footing again.

"They usually take down the strongest stocks at the end of a correction," explains

Lehman Brothers

chief technical analyst Steve Shobin, "so I think the recent selloff in stocks such as Sun and Cisco might show that this phase of the correction has come to an end." Shobin also notes that there were not nearly as many new 52-week lows on the Nasdaq in the most recent downturn as in the mid-April downdraft. While the big dogs were getting their teeth kicked out, most stocks were beginning to stabilize.

If the Nasdaq has, in fact, touched bottom -- if even the big stocks have seen the worst of it -- it may be time for the old leadership to reassert itself. That is what happened in previous tech selloffs. In the current iteration, however, there's reason to think that not all the top-performing stocks will keep their leadership positions.

Source: Baseline;


"I think there's a knee-jerk buy, but I don't think they're all going to work," says


Canelo, U.S. investment strategist at

Morgan Stanley Dean Witter

. "You have the beginning of a reversal in the Nasdaq, but it's not universal. Some of the more reasonably valued stocks, they have bottomed, and there's a beginning of a recovery process starting now."

Stocks whose price-to-earnings ratios far exceed their growth rates will not do nearly so well as those whose P/E-to-growth-rate ratios, or PEG, are low, says Canelo. They certainly did not do as well during the decline -- stocks whose PEGs were less than 2 fell, on average, less than 10%, while those whose PEGs were above 3 fell 39%. That experience has led investors to consider a little more deeply how much they are paying for growth.

"We're going to have a more discriminating growth-stock manager," thinks Canelo. "Investors are differentiating on the basis of PEG ratios. The lower the better now."

Wrong! Rear Echelon Revelations: Selling the Rally


James J. Cramer

5/26/00 7:17 AM ET

It looks like Wednesday was just another short-covering rally. If things were different, if things were really better, we should have been able to put in two back-to-back days. The big-cap tech stocks look like they just got oversold. There was so much put-buying on Tuesday and Wednesday that we just got to an extreme of pessimism then snapped back.

That was our judgment. No whoosh, just a temporary selling climax that led to a work-off of an oversold position. Or, in English: Things got too ridiculous in a straight line so we had profit-taking by the bears.

Not everything was for naught this week, however. We found a level at which buyers keep wanting to come in: They seem to want to come in when


(INTC) - Get Report

is below 110, when


(CSCO) - Get Report

trades at 50, when


(SUNW) - Get Report

is down in the low 70s/high 60s.

That's where real buying by mutual funds seems to live.

I think it would have been different today if we had gotten some macro slow numbers. Instead, we just got the flip side, which is estimate cuts on the financials.

Over the next few months, we'll see a balance between macro data that slows and pleases and micro data -- reflecting that macro data -- from companies that they can't make their numbers.

That's what happens in a slowdown. Things slow down. For everybody except foods and drugs. Nothing new. Just like '94.

There will be periods of extreme pessimism during which you can buy stocks. Then there will be periods of extreme optimism, like today at 11 a.m., when you have to sell what you bought. This will continue until we hit the checklist of a couple of days ago.

Any attempt to try to short-circuit the process will lead to losses. Losses have to be avoided because they are what knock you out of the game. I can tell from our

poll results that many, many of you have scaled back or been knocked out. Much of the vaporization is because people bet too aggressively and then kept pressing the bet.

That's wrong. It was especially wrong today. It will remain wrong until the slowdown is visible to all. Until then, rallies like today, after the extreme bounce off of yesterday's bottom, have to be sold. Not bought.

That's how you will stay in -- or get back in -- the game. Reread the

Nightmare series. It isn't right yet. It will be right another time.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Cisco, Intel and Sun Microsystems. 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

Market Roundup: Traders Head Out of Town Early for Long Weekend; Stocks End Little Changed


Eileen Kinsella

Staff Reporter

5/26/00 5:22 PM ET

In typical New York fashion, many traders said


when it came to the stock market today. Trading was choppy and volume light as many opted to start the holiday weekend a little earlier.

Who could blame them after the last few trading sessions? In the past week, the

Dow Jones Industrial Average

shed 327.61 points, or 3.1% while the

Nasdaq Composite Index

gave up 185.25, or 5.3% in lackluster action marked by aimless swings, thin volume and rallies that quickly crumbled.

Even on the days when futures looked solid in morning action -- and there were a number this week -- the market failed to deliver and the headfakes are beginning to try investor patience.

"This is kind of more of the same. We've had the summer doldrums for a few months and its only May," said John Babyak, portfolio manager at

WHB/Wolverine Asset Management

in Stamford, Conn. "There is no direction right now. Who is going to step up to buy," he said, characterizing his own buying as more like "nibbling" than anything else.

On the bright side, the Dow and the Nasdaq Comp staged a very late-day rally that brought both indices off their lows. The Comp finished the day off 0.2, or 0.01%, at 3205.15 after bouncing in a negative, but narrow range throughout the day. At its intraday low, it was off around 46 points.

The Dow lost 24.68, or 0.2%, to 10,299.24, after a failed attempt to break even in the market's closing moments. The

S&P 500

fell 3.49, or 0.3%, to 1378.03 while the small-cap

Russell 2000

edged up 1.2, or 0.3%, to 457.37.

"It's just a continuation of the trend that we've seen. Interest rate concerns are pretty much hitting every industry," right now, said Brian Conroy, head of listed trading at

J.P. Morgan

. Even the days that that opened with hopes up on higher futures quickly eroded, he noted.

Conroy said yesterday's negative comments on

Goldman Sachs

(GS) - Get Report

earnings outlook provided a "reality check for the financial sector," noting that financial stocks are the "backbone of the market."

He also noted the weakness in the retailing sector, marked by a series of earnings misses, another of which hit today and pulled much of the sector down with it. The

S&P Retail Index

fell 2.1%.

Trouble stemmed from

Office Depot

(ODP) - Get Report

, which got worked over by investors after it warned that its second-quarter earnings will miss the consensus estimate of 24 cents, by 4 cents to 6 cents a share.

The company said profits were squeezed by a strong dollar, which reduced the value of foreign sales as well as weaker same-store sales. The stock plummeted 30.4%.

Related retailers were also feeling the pain with



getting clipped 7%. Electronic retailers

Circuit City

(CC) - Get Report


Best Buy

(BBY) - Get Report

also lost some power. Circuit City fell 9%, while Best Buy lost 10.8%.

Dow component

Eastman Kodak


rose 3% after

Credit Suisse First Boston

added the stock to its focus list and rated it a strong buy.



lost its earlier steam, slipping 0.5% after early gaining more than 5%.

SG Cowen

said it was optimistic about the company's optical business. Other telecommunications giants performed well, including



up 2.5% and


(GTE) - Get Report

up 2.2%.

Internet stocks were mixed, with Internet Sector

squeezing out a 5.46-point, or 0.7%, gain. For the week, the DOT lost 8.7%.

The S&P 500 lost 2.1% in the latest week, the Russell 2000 lost 4.7%, the

Dow Jones Transportation Average

braked 2%, the

Dow Jones Utility Average

slipped 0.3% and the

American Stock Exchange Composite Index

lost 3.6%

Rays of Hope?

But amid all the gloom and doom, some are predicting there may be some light ahead. Babyak said that while no one is eager to attempt calling a bottom on this market, there "are some signs that we're nearing a bottom," noting a dampening in volatility as we pull back and test the lows.

"It's almost like the market is wringing out the excess. Every time we get a rally, there is some short covering. The destructive nature of this market is lessening. That would portend a bottom," he said. "It might take a week or it might take two months, but we are going to have a rally at some point."

Market Internals

Breadth was slightly positive on the Big Board and negative on the Nasdaq on thin volume.

New York Stock Exchange:

1,491 advancers, 1,352 decliners, 725.09 million shares. 36 new 52-week highs, 87 new lows.

Nasdaq Stock Market:

1,752 advancers, 2,142 decliners, 1.050 million shares. 17 new highs, 235 new lows.

Market Features: What a Week: Waiting Out the Storm and Hoping for a Rainbow


David A. Gaffen

Staff Reporter

5/26/00 4:40 PM ETThis Memorial Day weekend calls for lots of rain on the East Coast. Would the roof only fail at the

New York Stock Exchange

, and open up the skies, so that a real rain can come and wash all the negativity off the Street.

Because it's with dead seriousness that various sources, speaking from a fundamental point of view, actually sounded positive nearing the end of the week, despite the shiver that ran up their collective back each time the major averages failed to support a previous day's rally.

The last few weeks have begun upbeat, with a sense that the doldrums, marked by fear of the

Federal Reserve, were on the wane. The weeks have ended with a market feeling more disillusioned than before, and that was no different this week, with the


slouching toward 10,000 and the


drooping toward 3000.

For the week, the Dow Jones Industrial Average shed 327.61, or 3%. The Nasdaq Composite Index fell 185.25, or 5.5%, to 3205.15 and the

S&P 500

ended the week 2% lower. The Nasdaq is now off 36.5% from its high, and the Dow is down 9.6%. A bear market.

So, what's giving strategists even a whiff of optimism? After losing nearly 2000 points on the Nasdaq, some are looking at the last eight months or so and simply shouting "do-over!" Inflation, as measured by the core

Consumer Price Index, is rising at a reasonably slow rate, and so the intellect in people feel that the Fed this year has at most one more rate hike in them.

That's what's inside people's minds. But it took one bad research report about broker

Goldman Sachs

(GS) - Get Report

to sink what had been an orderly day of rotation Thursday. Two days earlier, it took barely a sneeze to destroy any positive sentiment created by Monday's late-day recovery.

"It's an emotional market," said Tony Dwyer, chief market strategist at

Kirlin Holdings

. "Fundamental and technical analysis doesn't work in an emotional market. Until that emotion wanes, you can't say, 'this is going to be a bad week' and 'this is going to be a good week.'"

Well, it's official now. This was a bad week.

It began harshly enough

Monday, a grind of a session that at one point showed both the Nasdaq and Dow down 200 points.

General Motors

(GM) - Get Report

took the Dow down, losing 10% in the process of a share exchange offer with its

Hughes Electronics



Tuesday, the market had all the lift of

Seeger in

An Officer and a Gentleman

-- try though it might, it couldn't walk the wall. The day started with a slight follow-through of the previous day's rebound, but traders quickly found out that while buyers were willing to support the Nasdaq at its lows, it didn't have much interest in taking it further.

The following two days were repeats of the previous two. One decent day, followed by one lousy day.

Wednesday marked the triumphant return of volume, but for every sector that performed well, another was smacked around.

Airlines were strong on news of a proposed combination of

United Airlines

(UAL) - Get Report


US Airways

(U) - Get Report

, but the on-line brokers had a hard time after a scathing report from

Robertson Stephens


Thursday's Must-Flee S&P

Thursday, things looked to be on solid earth, rather than shifting clay. A steady rotation into technology stocks away from cyclicals, commodities and brokerages was underway, and while the Dow was giving in to weakness, breadth and volume on the Nasdaq was admirable for the first two-day period in, well, a long darn time.

That's when the Goldman Sachs news hit. The company has apparently been guiding analyst estimates for its second-quarter earnings downward, and the stock plunged. A few light bulbs went on -- if Goldman is going to see diminished revenue due to a decline in IPO underwritings, rising bond yields and declining trading volume -- well, more than a few brokers are going to be hit with similar problems.

And it was lights out for the

market, especially the Dow, which gave up 211 points.

"You need that follow-up day," said Barry Hyman, chief market strategist at

Ehrenkrantz King Nussbaum

. "Without it, it negates the positive action of the prior up day. We had a turnaround day Monday, and a failure on Tuesday; a turnaround Wednesday, and failure to continue on Thursday. That tells me that there remains the possibility that we may be searching out a

buying time, but there's no commitment yet."

Traders were certainly not making any commitments Friday. The morning's April

durable goods report, which showed a 6.4% decline in durable goods orders, didn't support the market, probably due to the monthly volatility of this economic release.

As expected, volume was heavily diminished. Just 725 million shares traded on the

New York Stock Exchange

, and 1.05 billion shares were exchanged on the

Nasdaq Stock Market

, one of the lightest days of the year. It was an undistinguished day, punctuated by traders explaining the action as "squaring of positions" for the three-day weekend.

Maybe nine years of a bull market is the reason, but people are undeterred.

"What's important is, in the next 12 months, will equities be the best performing assets?" says Dwyer. "To be negative now, with the Nasdaq down 2000 points, doesn't make sense. That's what's making me turn bullish."

It may well rain all weekend. But it can't rain all the time.

Copyright 2000,