May 9, 2000

Market Data as of 5/9/00, 2:14 PM ET:

o Dow Jones Industrial Average: 10,535.37 down 68.26, -0.64%

o Nasdaq Composite Index: 3,544.49 down 124.89, -3.40%

o S&P 500: 1,403.48 down 20.69, -1.45%

o TSC Internet: 837.97 down 26.34, -3.05%

o Russell 2000: 486.90 down 13.18, -2.64%

o 30-Year Treasury: 100 14/32 up 13/32, yield 6.213%

In Today's Bulletin:

o Midday Musings: Techs Continue to Struggle With Volume Still Lacking
o Herb Greenberg: *NEW* Herb's Hotline: On the Computer Associates Earnings Delay

Also on

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Midday Musings: Techs Continue to Struggle With Volume Still Lacking


David A. Gaffen

Staff Reporter

5/9/00 1:38 PM ET Might as well break out the

Lowenbr u

now -- 'cause it might not get any better than this.


Nasdaq Composite Index

is eroding by the hour, led by steadily weakening big-cap technology stocks, including


(CSCO) - Get Report

, which reports first-quarter earnings after the close. The Comp lately was down 91, or 2.5%, to 3579.


Dow Jones Industrial Average was weakening, too, after a morning when a few weak stocks and a few pockets of strength wrestled the average to a veritable stalemate. Lately the Dow was off 31 to 10,572, while the

S&P 500 lost 13, or 0.9%, to 1411.

Internals on both markets are decidedly negative on another day without any support from buyers, as just 838 million shares have traded on the

Nasdaq Stock Market

, and only 546 million on the

New York Stock Exchange.

A familiar and frustrating pattern held form this morning, as the Comp started fast, attempting to regain some of the ground lost yesterday on a


article questioning Cisco's valuation. Now, strategists and analysts have been arguing for months that Cisco is overvalued, but until a couple months ago, they'd just been whistling Dixie.

But with Cisco's earnings due after today's close, and the bearish sentiment that continues to dominate among technology stocks, the article's timing was prescient, and accurate or not, it served to hold back some who felt ready to jump into the breach. Cisco, after losing nearly 5 points yesterday, was actually holding in there, lately down just 15/16 to 61 15/16 on 40.2 million shares, making it the Nasdaq's most active.

'A Reality Check on Triple-Digit P/Es'

"I don't know that the earnings per se on Cisco is the event that keeps buyers away, but there's clearly a reality check on triple-digit P/E ratios," said Richard Cripps, chief market strategist at

Legg Mason

in Baltimore. "At the margin it's keeping buyers from buying the stock. If you're in an environment that's losing momentum, you get the natural selling pressure, and the buyers can only take so much."

That sentiment has spread to other technology stocks, especially big-cap names in the deep end of the swimming pool, where lots of investors like splashing about. That includes the likes of

Sun Microsystems

(SUNW) - Get Report

, which bounced more than a point in the early going before fading, lately down 3 3/4 to 81 5/8; and


(ORCL) - Get Report

, which was down 1/4 to 72 1/16.


Morgan Stanley High-Tech 35

was down 2.5%.

Biotechnology stocks were among the trod upon, with


(AMGN) - Get Report

off 2.4%,



down 5.4% and

Celera Genomics


losing 9.9%. The

American Stock Exchange Biotechnology Index

lately was down 2.9%. Internet Sector

index was off 17, or 2%, to 847, while the

Russell 2000 was off 9, or 1.9%, to 491.

"Tech stocks are trying to battle against the current of a down market, which is overwhelming any positive fundamentals," said Cieran O'Kelly, trader at

Salomon Smith Barney


But some reckon that it's those fundamentals keeping volume at a trickle and the conviction among investors on soft ground. With P/E ratios still historically high and the investors viewing the market through the lens of rising inflation and a potential slowing of economic growth, dip buying remains perilous.

Hesistant to Put Money to Work

"People are hesitant to get back into the market," said Phil Ruffat, vice president at

Fuji Futures

. "People are being paid to put money to work and not manage cash ... but funds are sitting in cash, and they're being selective coming into the market."

Where they're coming back, they're being prudent. Today's strong sectors are few, basically retailers and a few others. Dow component


(WMT) - Get Report

reported first-quarter earnings of 30 cents per share, exceeding

First Call/Thomson Financial's

consensus expectations for 29 cents a share. The stock gained 1/2 to 52 7/8 and was leading the way for some other retailers.



was strong today, gaining 1.7%, but the

S&P Retail Index

was up just 0.05%. Dow component


(T) - Get Report

was the NYSE's most active, gaining 3/8 to 37 1/2 on 19.8 million shares.

Other strong movers on the New York Stock Exchange included

Computer Sciences


, up 4.1%, and Dow component


(KO) - Get Report

, up 4.6%. Financials shed their former strength: The

American Stock Exchange Broker/Dealer Index

was down 0.2%, and the

Philadelphia Stock Exchange KBW/Bank Index

was up 0.1%.

Traders still expect volume to pick up after the

Federal Reserve's May 16

Federal Open Market Committee meeting, but how the market reacts depends mightily on how aggressive the Fed is. The market, as evidenced by the fed funds futures traded on the

Chicago Board of Trade

, is expecting a 50-basis-point hike in the

fed funds rate. That would bring the rate to 6.5%, and again it seems some traders are starting to proclaim this "the last one," for whatever reason -- the presidential election, the psychological impact of a 50-point hike, the tides, etc.

The supine market's neuroses -- waiting for the Fed, waiting for economic data -- provoked Ruffat to quip that "we're kind of acting like the bond market."

Market Internals

Breadth was negative on light volume.

New York Stock Exchange

: 1,152 advancers, 1,596 decliners, 546 million shares. 38 new highs, 50 new lows.

Nasdaq Stock Market

: 1,267 advancers, 2,580 decliners, 838 million shares. 25 new highs, 69 new lows.

For a look at stocks in the midsession news, see Midday Stocks to Watch, published separately.

Herb Greenberg: *NEW* Herb's Hotline: On the Computer Associates Earnings Delay


Herb Greenberg

Senior Columnist

5/9/00 12:14 PM ET

Thoughts, observations and other comments:

Red flags flapping in the wind:

The only question I had when I saw that

Computer Associates

(CA) - Get Report

had unexpectedly delayed the release of its year-end earnings was, "Didn't they just change auditors?"

Indeed they had ... last July. Remember? (I know I didn't until I went and checked what I had written about the company!) They sneaked the change into an


filing that appeared the Friday before July 4 -- you know,

when half the financial world is on vacation!


I wrote then remains true today: It's


a red flag whenever a longtime auditor is canned, especially one that has been with a company for as long as

Ernst & Young

had been with Computer Associates (more than 10 years).

It's even more of an eye-opener at a company like Computer Associates, which has been under fire from critics for what seems like years for unusually high receivables. You can argue that change is a good thing, because it lets a new pair of eyes comb the financials. Yep, but it's a double-edged sword. Which brings us to the delay in the earnings report: Why?! No comment from the company, and until there is, the flags will continue to flap.

"Is Herb Greenberg really unbiased or a true friend of the Salton shorts?"

My name in lights!

: Gee, thanks


analyst Peter Schaeffer (and die-hard



fan) for devoting an entire column to your humble servant (or at least to my recent take on Salton.) Loved the first line: "Is Herb Greenberg really unbiased or a true friend of the Salton shorts?"

Hello! As if there's somethin' wrong with that? Like it's OK to be a true friend of the longs, but not a true friend of the shorts? Who was it who wrote a column in


that claimed, "Short-sellers wear the white hats!" (Me.) Who is it who makes it clear that short-sellers are among his best sources? (Me.) Who is it who probably quotes short-sellers more than any other journalist in America? (You're hot ... yes, ME!) Nothing to be ashamed of there.

Schaeffer continues: "It is amazing to me that a well-known columnist, such as Herb Greenberg, can't find more interesting stocks to tear apart than Salton." Like there's anything more interesting than grillmeister George F. and the likelihood that sales growth of the grill is at or near a peak? (Know anybody who


have one?)

More from Schaeffer on


: "Over the past two years, this supposedly 'unbiased' Street analyst has attacked the company several times with incomplete and distorted information." Pauly, get yer facts straight: I'm not a "Street analyst." I'm a journalist who writes a column that falls under the "commentary" section on our site. Commentary, last time I looked, ain't about being unbiased. My sources are clearly BIASED, with a capital B! (And the angle I take is, well, an angle.)

More from Schaeffer, on my motives: "But what is really perplexing is why he is interested in Salton. Salton has a market cap below $1 billion and a miniscule list of institutional holders." Like I should


a company because it doesn't have many institutional investors and it has a market cap under $1 billion? Like stocks that cater to retail investors shouldn't get scrutiny? (

Boston Plucker

, anybody?)

Shaeffer doesn't stop there: He says that Salton's unusually high "short interest is propelled by a belief that Salton will crash, as almost every other appliance company has in recent years. We dispute the claim, as Salton is actually a marketing company rather than a manufacturer, with higher margins, better distribution and less upfront risk than most competitors."

Marketing company my rump! That's corporate malarkey.


company is a marketing company, no? So Salton outsources most of its products; it still has to pay for outsourcing them! No argument that Salton, with its grill, is a great marketing company. (Why hiring George F. helped pull the grill out of obscurity is beyond me, but if it works

go with it!




, with its zip,


a great marketing company, too. (Painted the darn thing blue and it was an overnight hit!) One hit like the Zip or George F. grill, in any company's lifetime, is all an investor can ask for. (Luck of the timing, I guess.) Two hits (along those lines) from the same company: Virtually impossible.

The bottom line of the bulls is that Salton is a low-multiple biz, which means it's undervalued and a safe bet for value-oriented investors seeking growth. Bottom line for bears is that Salton is a low-multiple biz because that's what it

should be

because aside from the grill, much of its pipeline is stuffed with low-growth products. And you don't -- the bears argue -- pay a big multiple for a company that constantly has to reinvent itself. (Especially if it's picking public fights with short-sellers. Claudio Osorio of

CHS Electronics


learned that lesson the hard way, but that's another story for another day.)


Suppose you wonder whether this

morning's column, quoting



CEO Greg Reyes on why he couldn't understand the






merger was self-serving. Indeed it was (and didn't ya love it?!). But anytime a guy like that wants to go on the record you let him -- because with 90% of the market the man has credibility ... or at least more than I can say about, well, we won't name names, heah! ... Speaking of Ancor, if it keeps plunging the way it has been, it'll get back to where it was


the merger was announced Monday (oops, never mind, at last check the stock got as low as 30 1/4. It's officially a take-




(CVS) - Get Report

just reported. Bulls blowing their horns in celebration. One big skeptic says its numbers, though, are a farce. Back with more on


later (gator).


take on


(CSCO) - Get Report

, which is now FREE, is a must-read. You'll see why I call him the "thoughtful" one among us (no hip-shooting from that boy).

Rate rattles continue to wreck this market. My take (as if it matters?): Up a half a point (no duh!), market rallies (whew, whadda relief) only to return to its unusual volatility before the


Fed meeting, which is sure to create a new cycle of hand-wringing. (I'm practicing for predictions on our tv

show this week; Mom's coming up from Florida to watch from the control room.)

So, what's is this

Herb's Hotline

anyway? It's a new column if I can get it going with any consistency. Thoughts? Comments?? Observations??? Shoot them

my way, along with any ideas, relevant snippets from analyst reports or any other ideas. Oh, and if you're on the east coast, stay cool! Rolling blackouts coming to New Jersey. (Or so we're told.)

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.

James J. Cramer with Bill Fleckenstein on Yahoo!Tuesday, May 9

James J. Cramer squares off with longtime short-seller Bill Fleckenstein on the plunging demand for corporate PCs and more.

Join them for the first time on Yahoo! May 9 at 5:00 p.m. EDT.

Register for Yahoo! Chat at It's free!

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