TheStreet.com's MIDDAY UPDATE
August 9, 1999
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Market Data as of 8/9/99, 1:14 PM ET:
o Dow Jones Industrial Average: 10,741.90 up 27.87, 0.26%
o Nasdaq Composite Index: 2,555.57 up 7.60, 0.30%
o S&P 500: 1,304.62 up 4.33, 0.33%
o TSC Internet: 494.93 down 3.46, -0.69%
o Russell 2000: 428.13 up 0.09, 0.02%
o 30-Year Treasury: 87 02/32 down 16/32, yield 6.199%
In Today's Bulletin:
o Midday Musings: Interest-Rate Worries Keep the Clamps on Stocks
o Technician's Take: When the Market's Insane, Don't Forget the Basics
Also on TheStreet.com:
Wrong! Rear Echelon Revelations: DIY: Not Just a Financial Craze
Do-it-yourselfers and daytraders aren't in the same game.
SiliconStreet.com: The Hole Truth
Every top Net company's plan has a gap so big, only another big concern can plug it.
Brokerages/Wall Street: After-Hours Pioneers Test ECN Terrain
The ECNs have after-hours trading all to themselves, for now.
Semiconductors: Chip Stocks Prospering Despite Recent Tech Selloff
PC chip stocks are surging as interest rate-wary investors shed the Net and buy into the seasonal infatuation for semiconductors.
Retail: Express Bets on Bras to Lift Margins
The Limited unit is delving into the hugely profitable world of intimate apparel to support a turnaround.
Midday Musings: Interest-Rate Worries Keep the Clamps on Stocks
So, you're expecting a 25-basis-point rate hike. What do you do now, hotshot? (Forget the speeding bus.)
At midday, the
Dow Jones Industrial Average
was up 23 to 10.737 while the
was off 5 to 1305. The tech-slathered
Nasdaq Composite Index
was up 7 to 2555, and the small-cap
was up a fraction to 428.
Those even-Steven indices don't give much evidence of today's early rally, which, not surprisingly, evaporated almost immediately. That's been a persistent pattern in the face of the increasingly conventional wisdom that interest rates are going higher. And it doesn't help that it still isn't clear whether the stock market's priced that hike in yet.
"This is new territory for this market. It's been many years since we saw multiple hikes," said Pete Boockvar, equity strategist at
Miller Tabak Hirsch
. He said that the bond market holds the best key to that question -- and the bond market looks as if it isn't quite done selling off. The 30-year Treasury bond was lately off 24/32 to 87 2/32, its yield rising to 6.21%. (For more on the fixed-income market, see today's early
Boockvar noted that the
Fed funds futures are close to completely pricing in a 25 basis point hike
Robin Griffiths, chief technical analyst at
HSBC James Capel
, said he doesn't see any uptrend ahead of the Aug. 24
Federal Open Market Committee
meeting. "I'm expecting it to drift lower between now and the end of the month," he said. "The rallies have been fierce but short-lived. It's been tough to make any money out of them."
Apart from the market's reaction to the prospect of rising interest rates and equity prices that he described as "too bloody high," Griffiths said the market's basically experiencing a seasonal dip right now, and lot depends on how bad things get at the end of the month.
Getting down to worst-case scenarios -- an excellent pastime on a hot summer day -- Griffiths said that a fall below 10K would be problematic, given investors' intractable affinity for nice, round numbers. But the charts themselves say that 9700 -- the Dow's 200-day moving average -- is a much more crucial support level. Any movement below that will be bad news for U.S. markets, he said.
Griffiths waxed stoic on the recent Net slump. "This isn't the end of the Internet boom. It's just one of many consolidations that all great booms have along the way." He said he sees institutions moving back into Net stocks as they become cheaper and cheaper.
Cheaper they've gotten:
TheStreet.com Internet Sector
index is sitting about 37% below its all-time high. And the interest-rate picture was weighing on the DOT again, sending it down 3 to 495.
As on any normal Monday in August, volume was thin, with 392 million changing hands on the
New York Stock Exchange
and 427 million shares traded on the
Nasdaq Stock Market
Thin markets like this are easily yanked around by the movement in the S&P 500 futures. But the futures didn't look like they'd be mustering the energy to make much of a move in any direction approaching midday.
"There's a distinct lack of interest right now," Brad Benshop, vice president of CME equities at
J.P. Morgan Futures
in Chicago, noted in distinctly uninterested tones. With the September S&P 500 futures going through a consolidation phase after falling through the 1327 level, Benshop listed the key support level as 1292. "We keep failing at 11 and continue to chop around." The September contract was lately trading up 1 to 1308.
Benshop said he's more bearish than bullish in the near term. "There's poor breadth and expanding new lows vs. new highs," he said. "The pit's more active on the down days than the up days. And the rallies aren't following through."
Not much was happening to alter that outlook today. Decliners were topping advancers 1,557 to 1,261 on the
New York Stock Exchange
with 139 new 52-week lows against 39 new highs. In
Nasdaq Stock Market
action, decliners were beating advancers 1,880 to 1,723 with 63 new lows and 35 new highs.
Monday's Midday Watchlist
was surging 4 3/16, or 31.8%, to 17 7/16 after
agreed to buy it for $1.1 billion in stock. EMC, lately down 2 13/16 to 57 3/16, will issue 0.3262 share for each Data General share. Based on Friday's closing prices, the deal values Data General at about $19.58 a share. EMC, a provider of enterprise storage systems, software and services, said it expects the takeover to be accretive to its fiscal 2000 earnings and "significantly" accretive to fiscal 2001 earnings.
Mergers, acquisitions and joint ventures
lost 1 to 50 11/16 and
moved up 3 3/4, to 88 7/16 after
The New York Times
said the companies are considering an arrangement that would diminish the role of
by giving AOL and possibly other Internet providers enhanced access to AT&T's systems. Shares of ATHM sank 3 15/16, or 9.3%, to 38 3/4.
AOL also announced a strategic alliance with
which will provide AOL 's corporate customers with Internet, extranet, and intranet development services. Proxicom jumped 3 7/8, or 11.8%, to 36 1/2 on the news.
And AOL wasn't done, inking an instant-messaging deal with
Juno Online Services
that had Juno jumping 2, or 13.7%, to 16 5/8.
rose 5/8 to 22 3 /8 after it said it is acquiring the rights to 2,100 communications towers from
, a unit of
. Vodafone AirTouch gained 1 3/8 to 187 5 /16.
rose 1/16 to 39 1/2 after it made a tender offer to shareholders of
, a Danish construction company, at $21 a share.
gained 3/4 to 63 after it announced plans to invest $1 billion into
, the U.S. division of
. Separately, Cisco is expected to post its fourth-quarter earnings tomorrow. The 30-analyst estimate calls for the company to earn 20 cents a share
lost 7/8 to 106 1/8 after its unit,
GE Medical Systems
, said it was buying
OEC Medical Systems
for $36 a share in stock. OEC Medical rose 1/2 to 34 1/8.
lost 3 1/16, or 6.9%, to 41 5/8 after the company said it expects to seal an alliance this year with major Internet service provider to sell high-speed Internet connections through its
Earnings/revenue reports and previews
May Department Stores
lost 3/8 to 38 9/16 after it reported second-quarter earnings of 43 cents a share, two cents ahead of the 18-analyst estimate and up from the year-ago 35 cents.
is expected to post second-quarter earnings tomorrow. The 17-analyst estimate calls for the company to earn 28 cents a share.
Offerings and stock actions
, a business information company, said it canceled its planned $175 million to $231 million IPO, citing adverse market conditions.
cut the number of shares and the price-per-share of its upcoming IPO. The company said it will now offer 3 million shares in a $9 to $11 range, down from the original 4.75 million shares in a $12 to $14 range.
rose 2 3/4, or 9%, to 32 3/4 after
upped the rating to strong buy from accumulate.
Capital One Financial
added 1/16 to 40 5/8 after
raised its rating to attractive from neutral.
gained 1 7/16 to 41 1/4 after BancBoston Robertson Stephens upgraded shares to long-term attractive from market performer and set a price target of 48.
lost 2, or 5%, to 39 after
Credit Suisse First Boston
started coverage with a buy recommendation.
Electronic Data Systems
slipped 3/4 to 57 3/4 after PaineWebber raised its rating to buy from attractive.
added 5/8 to 40 7/8 after PaineWebber lifted its rating to buy from attractive.
Impac Commercial Holdings
lost 3/16 to 5 11/16 after PaineWebber cut its rating to neutral from attractive.
shed 4 5/8, or 13.7%, to 29 7/16 after
cut its rating to neutral from buy.
Advanced Micro Devices
gained 1 7/8, or 10% to 19 1/4 after it introduced the 650-megahertz AMD Athlon processor, which it said is "the world's fastest and highest-performance microprocessor for x86 computer systems." BancBoston Robertson Stephens raised its rating to buy from long-term accumulate.
lost 1/16 to 32 3/16 after it named Philip Husby chief financial officer. Husby held the same position at
lost 3 3/16 to 78 after setting some new calling plans. Under the MCI 5 Cents Everyday program, callers who pay $1.95 a month would be charged 5 cents a minute on all residential state-to-state long-distance calls made between 7 p.m. and 7 a.m. on weekdays and all day Saturday and Sunday, along with weekday daytime calling for 25 cents a minute. Under another plan, MCI 5 Cents Everyday Plus, the cost would be 5 cents a minute from 7 p.m. to 7 a.m. and 10 cents a minute for weekday daytime calling for a monthly fee of just $4.95.
Technician's Take: When the Market's Insane, Don't Forget the Basics
Gary B. Smith
Special to TheStreet.com
With this market doing its version lately of Rock 'Em, Sock 'Em Robots, it's probably a good time to go over two basics to help keep your powder dry and your sanity intact.
The market has no knowledge of your individual position. Here's a question I get a lot: "I'm long XYZ, which I bought at 150. It's now at 100. Should I hold? I mean, isn't XYZ bound to go up?"
Implied in this question, of course, is that XYZ almost has to go up, since it's been down so much! As if the market remembers that hey, you bought it at 150, so you're due for a rebound.
To bring some objectivity to the table, however, what you should do is break the trade down into odds and percentages. As an example, let's say you invested 150K in XYZ. Therefore, it's now worth 100K, meaning you're down 50K. And of course, right or wrong, you'd like to get back to even.
So, in essence, you now want your 100K of equity to earn 50% or 50K.
Okay, that's the goal. The next step is your options, and here's where the mind plays funny tricks. Essentially, you have two choices. You can leave your 100K with XYZ and hope it goes back up 50%. Or, you can
invest in any other stock in the universe
and hope that goes up 50%.
The trick your mind plays, of course, is that it conveniently forgets about choice No. 2. No, it thinks it somehow has to stick it out with the doggy XYZ.
As a real-life example, let's look at two stocks:
, which I reviewed this past
4 Kids Entertainment
. Let's say AOL was your real-life XYZ and you had ridden it down 33% (meaning you'd need a 50% bounce to get you back to break-even). Unfortunately, there are probably a few people in that situation.
So, on July 27, you look over your options, and go through the aforementioned exercise. Hmmm, are the odds in your favor that AOL will spring back up 50%? Or is there another, stronger stock that has a better shot at rising?
Ah, your eye spies KIDE, and you decide that the
craze is for real, the stock has been strong, and it even broke recently from congestion. So, you take your 100K and buy 2,836 shares of KIDE. Wow, a few days later, those shares are already up 33%! Meanwhile, AOL is down another 13%.
Yes, I know, I went back and found one strong and one weak stock to make my argument look good. But, my point is that there are always alternatives. Usually better alternatives to the dog you're holding now. If you think XYZ will rally, then stick it out. But, if you think there's at least one other stronger stock, then switch horses for a while. Really, the market won't mind.
It's okay to scratch a trade. Let me give you a recent example that ticked me off, but in retrospect worked out okay. It's not often I daytrade, but in multiple-day down markets, I am always looking for pockets of strength, or favorite stocks that have stopped going down.
Therefore, about a week ago, while the
was getting mauled, Microsoft
refused to budge. Now on the first telecast of "TheStreet.com" TV show, I was bearish on this stock and up to that point, had the good fortune to be correct. However, I just knew the
of the world, plus everyone else, would be looking to bottom-fish Mister Softee, especially after a multiday decline.
Therefore, while I was watching my quote screen and its sea of red, only MSFT stood out with green numbers. I figured if it could stay strong, it was worth at least a daytrade, and I hoped to catch a point or so. Therefore, about midday, I saw the stock take out some resistance (using five-minute bars) on heavy volume, and decided to go long at 85 1/4. The stock moved sideways, and then sure enough, continued on up.
Now with daytrades, a good technique to use is a trendline as a trailing stop. I simply connected the first few lows I had, and then continued the line on up. (As the real time chart updates, the trendline is continued automatically.)
Damn, MSFT looked good, and I thought if it could take out 86, I was home free. It was just about that time, though, that MSFT and just about every other tech stock got nailed, and in a five-minute period, my trend line was broached with the bid sitting back at 85 1/4.
Now, I could have hesitated, rationalized or paused for a bit, but instead I just sold my shares at the market, losing only the commission. Sometimes, yes, they do indeed come back. But this time it didn't, and MSFT finished the day down a teeny at 84 3/4.
Bottom line: I had a strategy, I had some risk control in place and it didn't work out. Being willing to scratch the trade, rather than be stubborn, saved me 1/2 a point. And in this kind of market, with no positive momentum on your side, you want to err on the side of scratching 20 trades in a row, rather than riding down even one for a huge loss.
So, two strategies that are easy to illustrate, hard to implement. But, try them out. In tough markets like we have, they're the kinds of ideas that will keep you in the ball game. And oftentimes that's the best you can hope for.
Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith writes five technical analysis columns for TheStreet.com each week, including Technician's Take, Charted Territory and TSC Technical Forum. While he cannot provide investment advice or recommendations, he welcomes your feedback at
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