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April 10, 2000

Market Data as of 4/10/00, 1:13 PM ET:

o Dow Jones Industrial Average: 11,227.51 up 116.03, 1.04%

o Nasdaq Composite Index: 4,331.76 down 114.69, -2.58%

o S&P 500: 1,516.13 down 0.22, -0.01%

o TSC Internet: 999.97 down 52.60, -5.00%

o Russell 2000: 533.86 down 9.13, -1.68%

o 30-Year Treasury: 107 31/32 up 7/32, yield 5.699%

In Today's Bulletin:

o Midday Musings: Traders Sort Through an Ordinary, Hugely Volatile Session
o Herb on TheStreet: Why Lucent May Not Be Out of the Woods

Also on

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Dear Dagen: Don't Expect an IPO Pop From a Closed-End Fund

They're more likely to rise in initial trading than open-end funds, but not by much.

Midday Musings: Traders Sort Through an Ordinary, Hugely Volatile Session


Justin Lahart

Associate Editor

4/10/00 12:56 PM ET The

Dow Jones Industrial Average

is up smartly and the

Nasdaq Composite Index

is down about 2%, but so accustomed have Wall Streeters become to violent swings in the market that they are pronouncing the day quiet.

"It's a lethargic day in front of a big earnings week," said Rob Cohen, co-head of listed trading at

Credit Suisse First Boston

. "There's not a strong consensus on which way to go."

At times one imagines plucking up some trader from the depths of an earlier epoch -- say a few years ago -- and seeing what he would have to say about this so-called quiet day. What would a younger Rob Cohen, a Rob Cohen circa 1997, think of what this later model is saying?

Volatility is one of the few things people will agree on in today's market. Though some will say tech stocks will soon climb anew, others think the baton is being passed to the Old Economy stocks for a spell and still others think the whole shebang is heading lower, more chop is a constant in everybody's outlook.

"For the next few months I think we'll see volatility," said Robert Dickey, managing director of technical analysis at

Dain Rauscher Wessels

in Minneapolis. "It's a trader's delight and a real frustration for investors."

Dickey believes that tech stocks, in particular, will bump and grind like unchaperoned teenagers -- he sees the Nasdaq caught in a range (if you can call something so big a range) of 3700 to 4700 for the next few months. It's a good market for Dickey, one where, because it is so psychological, traders are more apt to look at technical analysis than fundamentals.

It's also the kind of market that investors who are not interested in playing in the currents shun, and one of the reasons some focus is shifting elsewhere.

"The Old Economy, value, safe stocks are starting to attract more attention," Dickey said. "I would look at those as being relatively safe from a correction. They are not dot-coms, they're not going to move that way, but they're showing excellent action off their lows. That's where I'd be heading if I was an investor here."

Jeffrey Applegate, the

Lehman Brothers

chief investment strategist, does not share those views. In his monthly conference call today, he said that technology stocks probably got a bit ahead of themselves a couple of weeks ago, but that last week's downturn brought them down to levels where they are actually a bit undervalued. He continues to be overweight the sector, "mindful that you will get these swoons in relative performance."

Cohen, too, had good things to say about technology as

earnings season kicks off, "as most of the companies that are expected to report this week should have good earnings." And though there are some investors who, tired of the ups and downs of the sector, may bail as tech stocks recover, he believes that others, seeing upside momentum reassert itself, will be more than happy to buy.

The Dow lately was up 108, or 1%, to 11,220 while the

S&P 500

was up 3, or 0.2%, to 1519.

The Nasdaq was off 79, or 1.8%, to 4368. Other tech proxies were underwater as well. Internet Sector

index was down 43, or 4.1%, to 1010 and the

Morgan Stanley High-Tech 35

was down 1.8%.

Cyclicals were doing well after a strong earnings report from


(CHA) - Get China Telecom Corp. Ltd. Report

. The

Morgan Stanley Cyclical Index

was up 2.4%.


American Stock Exchange Pharmaceutical Index

was up 2.2%. The

Philadelphia Stock Exchange/KBW Bank Index

was up 2.5%.

The 10-year Treasury lately was up 6/32 to 104 29/32, dropping the yield to 5.84%.

Market Internals

Breadth was mixed on light volume.

New York Stock Exchange:

1,511 advancers, 1,269 decliners, 463 million shares. 43 new 52-week highs, 9 new lows.

Nasdaq Stock Market:

1,617 advancers, 2,380 decliners, 712 million shares. 41 new highs, 33 new lows.

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

Herb on TheStreet: Why Lucent May Not Be Out of the Woods


Herb Greenberg

Senior Columnist

4/10/00 1:10 PM ET




lately? Barely a month after the Street tenuously fell back in love with the company, following its announced plan to spin off its slowest-growing businesses, the honeymoon appears to be over. Lucent's stock, which soared on the news to a high of 73 1/2 in early March, now wallows at around 59 -- off 20% in recent days.

The latest hit came Friday, when

Lehman Brothers

analyst Steven Levy issued a report suggesting what some skeptics thought in the first place: that the proposed spinoff is little more than window dressing to distract investors from the real issues.

The real issue, according to Levy, is the issue that got Lucent into hot water in the first place: Its balance sheet. Short-sellers had been arguing the company's balance sheet (high receivables and inventories) would one day get it into trouble. That's just what happened in early January, and the news caused Lucent's stock to drop in a vacuum (losing 28% in a single day).

Levy's significance, in the scheme of things, is that he had been one of only two analysts who were Lucent contrarians until last November, when he

threw in the towel, boosting Lucent to a buy rating. (Lehman has no investment banking relationship with Lucent.) Adding insult to injury, he actually


his first-quarter estimates in January only hours before Lucent lowered the boom and warned of lower-than-expected first-quarter earnings. (Lucent's first quarter ended Dec. 31.)

The sandbagged Levy responded by immediately downgrading the stock to neutral. But his latest report, coming after a month's analysis of the company's first-quarter 10-Q, is noteworthy because it's always worth paying attention when an analyst re-raises the red flag. "We continue to believe that the problems that led to the disappointing first quarter ... have not abated," he says.

More to the point, Levy believes:

While the total amount of receivables over the past two quarters has fallen by $950 million, days outstanding of receivables -- the length of time customers are taking to pay -- is rising. Rather than the 95 days pegged by most analysts (based on stated receivables), Levy thinks it's closer to 112 days. In addition to pure receivables, he includes receivables that have been factored, or sold to a bank, as well as guaranteed debt that has been sold. (This is all part of helping finance customer purchases.) The combo, he believes, "is the most accurate measure of how much credit Lucent is affording its customers, because it is significantly more comprehensive and reflects all types of customer credit."

(I'd like to add a side note here: The issue of factoring, in general, can be a tricky area. By selling off receivables -- usually at a discount to their full value -- companies get cash. That's good, and so is the fact that the receivables, the amount owed by customers, are off the company's balance sheets. So much for deadbeat accounts, right? Not necessarily. Keep an eye on whether the receivables can be put back to the company; you'll know that because the company will disclose in the

Securities and Exchange Commission

filings that they were sold with "recourse." That's the case with Lucent, which says in its latest 10-Q that the most recent sale of receivables -- all associated with one customer -- has "limited recourse." Lucent, however, believes most of its liability associated to these receivables has been eliminated. It adds that the creditworthiness of that unnamed customer "is excellent.")

The spinoff won't be all it's cracked up to be for two reasons: First, it won't occur until the end of the this fiscal year, ending in September, so the benefits won't be recognized until the next fiscal year. Second, after the spinoff, "it appears that most of the balance sheet issues that are our primary concern should remain a part of the new Lucent."

Lucent's guidance for Wall Street for this year is likely to be "overly aggressive." An overriding reason is the lack of credibility, which has bagged analysts twice: in January 1999


January 2000. "Therefore," says Levy, "even with the company's insistence, as recently as last week, that there was no need to change its guidance for the March quarter (expected to be released April 19) or the fiscal 2000 year." Levy says he'll believe it when he sees it.

For good reason.

Kid's Play

This twist to


comments this morning on

4 Kids Entertainment


, which holds licenses to much of the Pokemon craze: His kids (and his personal trainer) like the company because they are enthused about 100 new Pokemon characters that could spark new sales of cards.

Well, my 10-year-old son (as good a barometer as Cramer's kids) has been bugging me for two months to let him sell his cards on


(EBAY) - Get eBay Inc. Report

or at the local card store. (He got


from his friends, who are chatting about doing the same thing.) They've tired not only of the fad, but of being forced to shell out upwards of $15 for a pack-o-cards. (At that price my wallet doesn't budge the way it did when they sold for a few bucks.)

After reading JJC's comments today, I asked him for his assessment. "Dad," he said, "Pokemon is dead."

That's my boy!

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.

TSC Chat Appearances

John J. Edwards III will be chatting about what to expect this week as we enter earnings season, and this is one chat you don't want to miss. Join John today at 3:30 p.m. EDT on AOL's MarketTalk.

Then, join Wall Street guru Jim Cramer for an in-depth chat about where the market is headed. Join Cramer Tuesday, April 11, at 5 p.m. EDT on Yahoo! Register for Yahoo! Chat at It's free!

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