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midday01-04-00's MIDDAY UPDATE

January 4, 2000

Market Data as of 1/4/00, 1:27 PM ET:

o Dow Jones Industrial Average: 11,069.29 down 288.22, -2.54%

o Nasdaq Composite Index: 3,950.87 down 180.28, -4.36%

o S&P 500: 1,408.75 down 46.47, -3.19%

o TSC Internet: 1,148.84 down 69.51, -5.71%

o Russell 2000: 479.33 down 17.09, -3.44%

o 30-Year Treasury: 94 14/32 up 28/32, yield 6.547%

In Today's Bulletin:

o Midday Musings: Harsh and Heavy Selling Pressure Slams Major Indices
o Herb on TheStreet: Finding a Troubling Nugget in Transaction Systems' 10-K


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If it can deliver, Intel is looking at a bonanza. But any sign of trouble could hurt the company's stock.

Options Buzz: Banks' Pessimism Pervades Options Markets

Put-buyers chase Chase, and Greenspan's renomination isn't quenching rate worries.

Dear Dagen: 10 Things You Need to Know: Dear Dagen: Exchange-Traded Indices Pose Threat to Mutual Funds

These securities are poised to take off in 2000.

Midday Musings: Harsh and Heavy Selling Pressure Slams Major Indices


Eileen Kinsella

Staff Reporter

1/4/00 1:09 PM ET

Stocks were awash in red at midday as interest-rate jitters joined forces with a wave of profit-taking to knock major proxies under water. This time, not even a champion swimmer like the

Nasdaq Composite Index

was able to buck the trend.

The Comp managed to come back slightly from an early drop of more than 110 points but lately swooned to its worst levels of the day, off 128, or 3.2%, to 4003. The

Dow Jones Industrial Average

was sinking 256, or 2.3%, to 11,102, pushing its loss to about 400 points in a mere two days, after the Dow suffered a 139-point drop


"The market has obviously had a tremendous move

up and we had to have some time to digest it," said Peter Da Puzzo, president of

Cantor Fitzgerald

, who characterized the downturn as "healthy." Da Puzzo predicted that things may be a "little bit painful" for a while as prices catch up with estimates, and also mentioned the caution seeping into the market as interest rates continue to inch up. Expectation of a

Federal Reserve

rate hike is "pretty much getting into the market, whether it is 25 basis points or 50, and the market has to be concerned about that."

Though Da Puzzo expressed optimism about the effect solid January earnings reports and Internet sales will have on the market, he warned that the sort of jaw-dropping swings seen in major indexes yesterday are "just the beginning."

"It seemed every time you turned around, the Nasdaq was hitting a new high," he said. "It's not going to be so easy and you're going to see some of the biggest down-market" swings in the year ahead.

Financial stocks were extending their declines despite the bounce in bonds. The

Philadelphia Stock Exchange/KBW Bank Index

was down 4.7%, while the

American Stock Exchange Broker/Dealer Index

was 4% lower. Dow component

American Express

(AXP) - Get American Express Company Report

was down 4%.

Lately the benchmark 30-year Treasury was up 26/32 to 94 12/32, its yield easing to 6.56%. (For more on the fixed-income market, see today's early

Bond Focus.)

Speaking of interest rates, the rate-meister himself,

Alan Greenspan

, was renominated by

President Clinton

for a fourth-term as Fed chairman. Despite general approval and anticipation of his renomination, a lesser-known fact is that Greenspan, who was first appointed Aug. 11, 1987, as chairman and a member of the Fed board, was reappointed for a 14-year term as a board member in 1992. Since that term obviously ends in 2006, not reappointing him chairman and leaving him on the board would have been unusual. And putting him in the position of opting to resign rather than face demotion wouldn't have gone over well with anyone.

Amid broad selling pressure, it seemed the only stocks managing to fight the tape were those with positive company news or research to brag about.


(S) - Get SentinelOne Inc. Class A Report

sailed up 9.2% after it said it expected to beat fourth-quarter estimates. (For more on Sears'

happy earnings news, check out the coverage provided by

joint newsroom.)



was flying 11 3/4 to 486 5/8 to after


upped its price target to 600 from 350. That wasn't doing much for Internet Sector

index, which was sliding 44, or 3.8%, to 1174 after leaping to a record yesterday.

The broader

S&P 500

was down 38, or 2.7%, to 1417, while the small-cap

Russell 2000

was falling 13, or 2.6%, to 484.

Solly's Manley Moves Away From Stocks

As if it weren't already a tough day for stocks,

Salomon Smith Barney

analyst John Manley said the firm was cutting its recommended allocation in equities to 55% from 60% and upping cash holdings to 10% from 5%. Manley said the bond weighting remained unchanged at a neutral 35%.

Among concerns Manley cited for the changes was the "severe outperformance" of stocks over bonds, which historically has been followed by poor stock performance (specifically in 1980 and 1987). Manley also dwelled on the positive effect Y2K concerns have had on stocks in recent months, including a stronger dollar and increased liquidity, attributes which could diminish now that the much-feared bug has all but been squashed.

Market Internals

Breadth was extremely negative, particularly on the Big Board, while volume was fairly heavy.

New York Stock Exchange:

901 advancers, 2,118 decliners, 560 million shares. 20 new 52-week highs, 123 new lows.

Nasdaq Stock Market:

1,142 advancers, 2,858 decliners, 868 million shares. 56 new highs, 93 new lows.

For a look at stocks on the move at midsession, see Midday Movers, now published separately.

Herb on TheStreet: Finding a Troubling Nugget in Transaction Systems' 10-K


Herb Greenberg

Senior Columnist

1/4/00 6:30 AM ET

Getting Back ... and Down to Biz

Shedding light:

There are just so many nuggets in routine

Securities and Exchange Commission

filings. Take last week's 10-K filing by

Transaction Systems Architects


, a leading developer of software for bank ATM machines. This is the same ATM software company that

recently blamed Y2K for what the company disclosed would be a weaker-than-expected fiscal first quarter and year. It's also the same ATM software company that

first hit this column after it changed its revenue-recognition policy in a way that appeared to help its revenue growth look stronger than it really is, which is where the latest 10-K comes in.

But first, a refresher: Until the end of 1998, Transaction recognized the bulk of its revenue by accepting software licensing fees as a one-time payment, booked up front, for perpetual use. The rest of its customers paid on a monthly basis, which is easier for many banks to avoid what can be a cumbersome internal approval process.

Then, last year, the company started offering a new type of contract to customers, creating a new twist to its revenue-recognition policy. Citing new accounting standards, the company gave itself the flexibility to also sell a contract for a guaranteed term (say, four years). The customer pays monthly, but because there's a guaranteed term, the revenue is booked up front.

Short-sellers argued that, without the change, the company's software licensing revenue would've fallen off a cliff. The company (which no longer returns my calls) disagreed, saying that it only appeared that way.

Herb's Latest: Join the discussion on

TSC message boards.

Enter the latest 10-K. In an expanded "revenue-recognition" section, Transaction disclosed (this is my interpretation of the legal gobbledygook) that if it hadn't been allowed to change the way it recognizes revenue, the licensing revenue booked up front would've amounted to only $5.1 million, not $60 million (out of total software licensing revenue of $210 million).

The implication is that rather than growing at a rate of around 26%, software licensing revenue would've actually fallen by 7%. "This is more confirmation of what we already know," says one short-seller, who is short the stock. "The company is not growing."

While the cat was away:


, the fake-diamond dealer known these days as

Charles & Colvard

(CTHR) - Get Charles & Colvard Ltd. Report

, announced it was delaying the purchase of half its expected delivery of moissanite crystals from supplier


(CREE) - Get Cree, Inc. Report

. C3 had agreed to buy


of Cree's moissanite production through June. It blamed the change on the "increasing quality of crystals" from Cree. (Huh?)

That rocket ship known as Cree, meanwhile, announced better-than-expected earnings yesterday. It's unclear how the loss of as much as 19% of revenue, from the C3 sales, will affect its performance going forward. In an SEC filing yesterday, Cree said that if the company is not able to replace the C3 revenue, its "financial results may be materially adversely affected." Yep, that's boilerplate, but sometimes boilerplates are worth reading.

Finally: Shares of

Genesis Microchip

(GNSS) - Get Genasys Inc. Report

, which should've been in my

year-end report card as an incomplete, have gone straight up in the past month. But look out (below?): Today, the company, no stranger to

this column, disclosed that revenue in the fiscal third quarter ended Dec. 31 will fall by 39% from the quarter before -- sequential declines are


good for supposedly fast-growing companies -- and earnings per share will fall to break-even from 20 cents in the previous quarter.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.

Copyright 2000,