March 20, 2000

In Today's Bulletin:

o Midday Musings: Midsession Rotation's Crushing Tech, Right? Not Quite
o Herb on TheStreet: So Much for the Rambus Short Squeeze

Also on

Wrong! Dispatches from the Front: Shooting the Red Hots

Cramer says that MicroStrategy's problems will echo in Red Hot land today.

Market Features: Here's a Top 10 List to Stay Off: Barron's Article Rocks Net Stocks

The article is hurting shares of all Internet stripes -- from the highflying VerticalNet to Peapod.

Silicon Babylon: Diversinet Loses Its Grip on Its Biggest Customer

Is a Canadian wireless Internet company up a creek without a paddle?

Dear Dagen: The Short Story on Exchange-Traded Funds Is as Good as the Long One

Their advantages over traditional mutual funds hold true, even when you're bearish.

Midday Musings: Midsession Rotation's Crushing Tech, Right? Not Quite


Justin Lahart

Associate Editor

3/20/00 1:09 PM ET Stop us if you've heard this one before.


Dow Jones Industrial Average

is up. The

Nasdaq Composite Index

is down. The

S&P 500

is straddling the flat line. Cyclicals are performing well. Dot-coms are getting their heads handed to them.

No, the action at midday, at least judging by the indices, doesn't seem all that different from last week. The Old Economy is giving the New Economy its comeuppance.

A closer look, however, shows that this is not entirely the case. True, the Dow was lately up 90, or 0.9%, to 10,685. But four tech companies (albeit old tech) --


(IBM) - Get Report





(HON) - Get Report



(INTC) - Get Report

-- were collectively adding 86.55 points to the index.

Meanwhile, chip stocks in general were doing well, as were PC makers and wireless concerns. If this is a massive rotation out of technology, a lot of tech is bearing the turmoil pretty well. In fact, the companies that weren't doing well were in the more speculative areas. Investors already saw some pretty big turnarounds in the highfliers last week, and today they got a cautionary tale in the form of


(MSTR) - Get Report

. The e-business software maker said today that it was restating its 1999 results to a loss from a profit -- and has fallen 57.5% as a result.

Perhaps the thing to take away from recent action in stocks is that, yes, there has been some rotation and, yes, there is something structurally different about the market. But this does not mean that things are going to be reversed, that from here on out it's tech heading lower while everything else moves up.

Rather, it may mean that the beaten-down sectors of the market are going to get fresh looks, while investors take a more selective approach toward technology.

"There might be shared leadership now," said Steve Shobin, chief technical analyst at

Lehman Brothers

. "But I don't think the rally is going to happen to the exclusion of tech stocks."

That thought is being echoed on trading desks.

"We just couldn't keep running with only the Nasdaq running up," said John Manahan, head trader at

Brown Brothers Harriman

. "Now, we have a coupling of the two markets. There's a lot of nice action this morning. It's a little on the quiet side, but they seem to be trying to work themselves back here. The market feels good to me."

The S&P 500 was lately off a fraction to 1469.

The Nasdaq was off 57, or 1.2%, to 4741, and Internet Sector

index was down 40, or 3.1%, to 1233.

The small-cap

Russell 2000

was down 11, or 1.9%, to 564.

The 10-year Treasury was off 4/32 to 102 3/32, putting the yield at 6.21%.

Market Internals

New York Stock Exchange:

1,474 advancers, 1,372 decliners, 510 million shares. 40 new 52-week highs, 25 new lows.

Nasdaq Stock Market:

1,663 advancers, 2,454 decliners, 819 million shares. 75 new highs, 71 new lows.

For a look at stocks in the midsession news, see Midday Movers, published separately.

Herb on TheStreet: So Much for the Rambus Short Squeeze


Herb Greenberg

Senior Columnist

3/20/00 6:30 AM ET



(RMBS) - Get Report

had been one of



stocks to short until very recently. Short-sellers borrow stocks then sell the borrowed shares. There were so many shares sold short that the only way shorts could borrow shares was to pay a premium over the stock's price. Usually, it's just the other way around -- shorts


interest on the stocks they short. The situation involving Rambus set the stock up for the mother of all short squeezes -- or at least a short panic. A short squeeze occurs when the owners of a stock demand that short-sellers return the borrowed stock. Short-sellers are then forced to buy the stock. That causes a rush of buying, which in turn causes prices to rise rapidly,

a la

Rambus. A panic is, well, just a panic.

Whatever you want to call it, Rambus' stock shot up to 471 from 69 in just 10 weeks. But, as this column often points out, when the shorts are squeezed out, so are the natural buyers as a stock then falls -- and falling is just what Rambus has been doing in recent days. On Friday, it closed at 393 5/8. What's more, my short-selling sources report, the stock is once again borrowable to the point that a small amount of interest is even being paid. ("It's still not normal," one Rambus short says, "but it's vastly different than it was.")

The squeeze itself was triggered by several positive events:


(INTC) - Get Report

statement at the Intel Developers Forum that it's next generation processor, Willamette, would use only Rambus memory; positive statements from several memory manufacturers; excitement over the release of the


(SNE) - Get Report

PlayStation, which uses Rambus memory and, finally, (a drumroll, please) the announcement of a 4-for-1 stock split.

However, according to our short-selling source, "each of these boosters appears to be fading."

His points:

"A little more than a week ago,


(MSFT) - Get Report

announced the X-Box, its competitor to the Playstation. The X-Box will use an Intel processor. But on a conference call, Microsoft said the X-Box would use double-data-rate (DDR) SDRAM

the fast memory chip standard that is the major upcoming competitor to Rambus. Coincidentally, the day of the X-Box announcement was the day Rambus chose to announce the stock split. Then again, perhaps it wasn't just a coincidence.

"The X-Box announcement suggests Intel will support DDR SDRAM in 2001. Remember also that at the Intel Developers Forum, when Intel made the Rambus/Willamette announcement, Intel also announced that Foster (the Server version of Willamette) would support DDR SDRAM. " (Also, according to a March 18 article on the Web site


Nintendo says it will use DDR SDRAM in its next-generation Dolphin game player.)

"The support of memory manufacturers may not be as solid as some would hope: On Friday, Joe Osha,

Merrill Lynch's

semiconductor analyst, questioned the rapid acceptance of Rambus technology. He wrote: 'Several days with DRAM manufacturers also left us with little understanding of the current optimism surrounding Rambus.' Osha also wrote, 'We would be surprised to see RDRAM (Rambus DRAM) exceed 10% of the total market in the latter half of 2000.'

"More importantly, consumer's themselves appear not to be excited about RDRAM.

The Commercial Times

in Taiwan on Friday wrote, 'Sales of

Intel's 820 motherboard (based on the i820 chipset) have been dismal, and show no signs of picking up.' The 820 is the primary platform used with Rambus memory.

The Times

went on to write: 'In addition, they

motherboard manufacturers noted that the failure of Intel's Rambus memory (a feature of the DRAM used in its 820 motherboards) to gain a foothold in the market has also dampened prospective interest in the 820 motherboard.'

"Finally, there is the stock split (which is supposed to be effective around June 14). Usually a positive, right? Perhaps not in this case. Because of its huge run-up, Rambus has become almost 20% of the

Philadelphia Semiconductor Index

, the SOX, which is a price-weighted index. But on June 14, anyone who mimics the SOX will have to sell three-fourths of their Rambus shares."

In other words, folks, don't count the shorts out yet, as the Rambus Rumble enters Round Two!

Short Positions

Iridiocy R.I.P.

All I can say about


decision to shut down its system and let its satellites fall to earth is this: Splash! (I don't mean to rub it in to all of the folks who lost money on what seemed like a great idea; this is just one final tribute to the Iridiots -- those Iridium investors

who pelted me with electronic stones when I dared question their darling company. As I like to say, too much hubris can be horribly humbling.)

MGM Redux:

If you missed the


side to last week's

MGM Grand


deal to buy

Mirage Resorts


, make sure you read my

weekend rewrite of my original MGM column.

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,