What Semis’ Reaction To Positive Comments Suggests

June 3, 2002
Daniel Beighley

Price action on the major
indexes began the day with reversals to the downside that turned into midday
consolidations, then a heavy sell-off into the close. Gold and silver and the
Japan stocks were the only positive areas, as biotechnology, semiconductors,
computer hardware, utilities, networking, oil, airlines, Internet and software
were hardest hit.

Closing below its 200-day
moving average for the first time in a month, the Dow Jones Industrial
Average
(
$INDU |
Quote |
Chart |
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PowerRating), down 2.17%, also broke key support at the 9800 area.
The Dow has been the strongest of the major indexes, and today’s action
delivered a heavy blow to the overall markets.Â

U.S. Treasury Bonds were
up 2 at 102′ 11.

In economic news, the Institute
of Supply Management’s index rose to 55.7% from April’s reading of 53.9%.
This was better than most economists had predicted.

Market breadth was negative,
with NYSE declining issues over advancing issues by a ratio of 2.66, and down–volume
over up–volume
by a 7.28 ratio. Nasdaq declining issues over advancing issues came in at 2.86,
and down–volume
beat up–volume
by a whopping 12.92 ratio. The
VIX
was up 2.90 at 25.70. The TRIN
was up 1.76 at 47.71.

Below-average volume
moved the Dow below its 200-day MA, as the S&P 500 moved below its key
support at 1050, and Nasdaq moved closer to its support area of 15.60. The
Semiconductor Index
(
$SOX.X |
Quote |
Chart |
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PowerRating), down 0.88%, broke its support area of
455. The Broker/Dealer Index
(
$XBD.X |
Quote |
Chart |
News |
PowerRating), up 0.64%, moved closer to
its support area of 432.

Utilities company Williams Companies
(
WMB |
Quote |
Chart |
News |
PowerRating), down 22.88% at 10.95,
fell after it claimed innocence over an allegation that it altered its pricing
metrics in an effort to corner the California natural gas market.

Also in the utilities sector, El Paso Energy
(
EP |
Quote |
Chart |
News |
PowerRating), down 14.42% at
21.95, fell after its treasurer was found dead in an apparent suicide. The
company is facing charges for improper trading and accounting practices.

Bear Stearns has made positive comments on semiconductor stocks, claiming now
is the time to buy into the sector as fundamentals are improving and it has good
valuation. Favorite chip stocks of the brokerage include Altera Corp (ALTR),
down 7.37% at 16.70, Cypress Semiconductor (CY),
down 4.31% at 19.07, Intel Corp. (INTC),
down 3.62% at 26.62, Lattice Semiconductor (LSCC),
down 4.39% at 10.23, LSI Logic (LSI),
down 4.91% at 10.84, Microtune Inc. (TUNE),
down 3.17% at 9.75, National Semiconductor (NSM),
down 4.16% at 29.42, and Texas Instruments (TXN),
down 3.24% at 27.74. The fact
that the market shrugged off the positive comments adds to the downside
directional bias for the semis.

Lehman Brothers has downgraded several stocks in the Enterprise/Application
software group based on the belief that the next two quarters will be a
difficult environment. Downgraded to “buy” from “strong buy”
are Advent Software (ADVS),
down 8.99% at 36.31, BEA Systems (BEAS),
down 10.40% at 9.64, Iona Tech (IONA),
down 10.22% at 8.96, Mercury Interactive (MERQ),
down 3.54% at 32.66, and Veritas Software (VRTS),
down 7.27% at 21.02. Lowered to “market perform” from “strong
buy” is Micromuse Inc. (MUSE),
down 7.01% at 6.50.

The Wall Street Journal has reported that USA Interactive (USAI),
down 12.63% at 24.90, has proposed to buy $4.5 billion of stock in Expedia
(EXPE),
up 2.97% at 73.63, Ticketmaster (TMCS),
up 2.61% at 21.95, and Hotels.com (ROOM)
up 2.42% at 49.05. The company is offering a 7.5% premium over Friday’s closing
price.

Conglomerate Tyco International (TYC),
down 26.87% at 16.05, has announced that its chairman and chief executive L.
Dennis Kozlowski has resigned for “personal reasons.” He is currently
under investigation for avoiding New York State sales taxes.

Internet infrastructure company Juniper Networks
(
JNPR |
Quote |
Chart |
News |
PowerRating), down
6.58% at 8.66, fell after Merrill Lynch cut its second quarter earnings
estimates for the company to a loss of one cent from a profit of one cent.

From TM’s proprietary Implosion
List, biotechnology company Biovail Corp.
(
BVF |
Quote |
Chart |
News |
PowerRating) fell 5.31%
to 30.65.

What Semis’ Reaction To Positive Comments Suggests

BUY THE FEAR, SELL THE GREED

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