Techs Mount Second-Half Comeback

The Nasdaq ended Friday's session higher, but the Dow stayed in the red. Expectations are rising for a 50-basis point rate cut on Jan. 31

It was a comeback worthy of the great John Elway.

On the last trading day before Super Bowl XXXV, the techs of the Nasdaq, after sliding as much as 67.63, made second half adjustments and mounted an impressive drive to come out ahead at the close.

Blue chips, on the other hand, didn't show the resiliency of the growth stocks and spent the entire day in negative territory with weakness in the retail, oil, tobacco, entertainment, aluminum, and paper products groups.

Alfred Goldman, technical analyst at A.G. Edwards, called the tech rally "impressive" and attributes the recovery to ex-Fed governor Alice Rivlin, who was quoted as saying the Fed would cut rates 50 basis points next week. "The Nasdaq started a little pause yesterday but at the moment it's coming back," he said "They're looking very resistant and they give further credibility to our opinion that the Nasdaq bear market ended Jan. 3. (when the Fed last cut interest rates).

Goldman was not surprised by the recent weakness in the Nasdaq. "When we came into yesterday and Greenspan's testimony, the Nasdaq was up 25% in the last three weeks and was obviously subject to some normal profit taking, be there good news, bad news or no news," he noted. "It was very likely that pressure would continue today but the Nasdaq is doing better, which shows resilience."

The Dow closed down 69.54, or 0.65% to 10659.98, while the Nasdaq rose 26.98, or 0.98%, to 2781.26. The S&P 500 finished lower by 2.57 to 1354.94.

Commenting on the earlier weakness in techs, Arthur Hogan, chief market analyst at Jefferies & Co. said he saw a silver lining within these clouds. "We got a pretty clear signal from the Fed that they're on board to keep the ball rolling," he noted.

Communications chipmaker PMC-Sierra Inc. (PMCS ) reported fourth-quarter earnings that matched estimates. But the company warned that first quarter earnings would fall far short of forecasts because of high inventory levels among its customers. Also on the tech front, fiber-optic parts maker JDS Uniphase (JDSU ) cut growth forecasts, as did telecom equipment maker Ericsson (ERICY ), who also announced a decision to pull out of mobile phone production.

BroadVision Inc. (BVSN ) shares are trading lower after the company posted fourth quarter earnings that fell short of expectations and announced that it sees little revenue growth in the first quarter.

Can you handle one last market prognostication? The stock market should post gains this year regardless of whether the New York Giants or the Baltimore Ravens wins the Super Bowl because both teams have National Football League roots, according to the Super Bowl Market Theory. The market is supposed to rise when a NFC team or one that has NFL origins, wins. Since Baltimore was formerly the Cleveland Browns, an NFL original, it would appear to be a lock for a bull market in 2001. Unfortunately, the theory, which has been correct 79.5% of the time, has been "wide right" the past three years.

Treasury Market

Treasuries rolled over and played dead to round out the week, with Greenspan's testimony out of the way and the FOMC just ahead. Durable goods orders jumped 2.2%, but this will not keep the Fed from slashing rates 50bp as it "was all air" -- a 94.4% jump in aircraft orders, without which the aggregate would have fallen 3.0%.

Supply remained a major obstacle crowding out Treasuries, with upsized jumbo deals left and right being priced, and details of the quarterly refunding due next week. Options activity was directed mostly at selling volume, in keeping with extremely low dealing volumes.

Treasury Market

Microchip Technology (MCHP ) posted $0.34 vs. $0.22 Q3 EPS on 37% higher revenues. The company expects Q4 sales to be flat to down 2% to 3% from Q3.

Documentum Inc. (DCTM ) posted $0.11 Q4 EPS vs. breakeven on a 44% revenue rise. The company named COO David De Walt to additional role of president.

Pfizer (PFE ) restricts use of its drug Capravirine for some patients in trials based on results of a 12-month animal toxicology study, which demonstrated an unexpected finding of vasculitis.

Starbucks Corp. (SBUX ) posted $0.25 vs. $0.18 Q1 EPS on 10% higher same store sales and 26% higher total sales.

World Markets

European equities were hit by Ericsson's decision to pull out of mobile phone production after a lower sales and profit outlook, and Belgium brewer Interbrew's forecast of a US$1.1 billion charge for the failed takeover of UK Bass's brewing interest. In contrast, Cap Gemini advanced after saying it expected 2001 revenue to grow 14%, but this not enough to counteract the negative bias to bourses. The FTSE 100, CAC 40 and DAX are all down, although less than 1%, but the Swedish OMX seriously underperformed, losing 4.3% in the session so far.

Losses in the tech sector led the Tokyo market south on Friday as investors took trading cues from the 3.7% Nasdaq slide overnight. The Nikkei 225 was down 0.8% at 13,696. That was the fourth-straight session that it closed below the key 14,000 level, as the market continues to hold out for the LDP to deliver on measures to shore up the ailing stock market following the resignation Tuesday of economics minister Fukushiro Nukaga. Hong Kong markets were closed for the Lunar New Year Holiday.

By Alan Hughes