Market Summary April 19, 2001
Posted Daily Between 5 and 6:30 PM EST
by Lance Lewis
Rate Cut Party, Day II
The rate cut party carried over to Asia last night as Japan rose 2
percent and Hong Kong rose 4 percent. Europe didn’t play along with
the rate cut party though and was down a touch this morning, which is
worth noting. The futures came off limit up in the Naz as we got closer
to the open although they had held up there pretty well almost all
night. We opened flat, took a little stutter step and then started to
slowly march higher and basically grinded slowly up all day, taking out
yesterday’s highs and ending on the high. Volume was good once
again although down from yesterday (1.5 bil on the NYSE and 2.7 bil on
the Naz.) Breadth was slightly positive on both exchanges. Big
winners were in the Internets as the IIX rose 8 percent. Big losers
were in the oil services as the OSX fell 3 percent.
IBM met its number last night and reassured guidance although they
hedged by saying that they are not immune to an economic slowdown.
Last night and this morning, we had some more less-than-stellar
earnings out of BRCM, ALTR, NEWP, CY and KLAC where guidance
was to expect continued deterioration in business conditions for the
upcoming quarters as well as a warning from semi equipment maker
CMOS for the current quarter. But, like yesterday, none of that
mattered because the derivative momo machine was firmly in control,
and it is currently chugging to the upside into expiration. Hence tech
stocks were bought and bought hard. The general pattern in
technology seemed to be that the worse the business is the more the
stock got bought. I’m not going to waste time describing the various
moon shots. There are a lot of people short these tech stocks that
understand the way their businesses are falling through the floor and
when they all get squeezed it can cause one heck of a rally, especially
when the Fed gooses stocks the way they did yesterday in front of an
expiration. What’s important to remember is that this rally is more of a
trading event rather than any fundamental change as a result of the
recent rate cut. Once it runs its course, we will turn lower again. The
question now is whether this is a trading rally that can last a while or if
like the January rally off the rate cut, it will be very short lived. I’m not
ready to address that just yet as I said yesterday, but I am currently still
leaning toward it being very short term in nature before what I believe
will be an epic decline. We’re still in “nothing matters” mode at the
moment. What we’ll want to watch for now is when that changes, and
people start addressing the reality of the situation again rather than
“hope.” Financials didn’t fair as well as technology, which is a red flag
for any bulls out there. The BKX only managed to rally a hair, and the
XBD actually fell a touch. GE rose another percent. We might want to
keep an eye on how the derivative king (JPM) trades from here, as the
big problem down the line will likely be a major derivative break at
some point. JPM was off a hair today even amidst the general good
cheer being passed around in stock-land. Credit insurers were quiet
today, although they didn’t exactly snap back from yesterday’s
pounding. Retailers were a sleeper for the most part as the RLX was
basically flat.
Oil fell 13 cents. The XOI fell a percent, and the OSX fell 4 percent.
Gold rose 4 bucks, and lease rates slid back to their recent lows. The
HUI rose a percent. The US dollar index slid another percent, ending
on the low. The euro rallied back above 89 cents. Treasuries were
crushed in the long end as the yield on the 10yr rose to 5.25%. We
may be seeing a long bonds/short tech trade being blown up here
after the Fed’s action yesterday. Consequently, the move down in the
bonds and the short covering rally in tech could be substantial, taking
place into an expiration like this.
Tonight, we’ll hear from SUNW, NOK, GTW, and MSFT among others,
and then tomorrow we have an option expiration. As always, trading
often differs radically on the Monday following an expiration, so that
may be when we want to watch closely to see if anything has changed
or if we’re still in “nothing matters, buy everything” mode. The
dollar’s continued weakness is also a big red flag that we’ll want to
watch. Regarding the Fed rate cut yesterday (which I got several
emails about), I basically addressed this yesterday, but I’ll just say that
the Fed cannot print us back to prosperity once the bubble has
popped. In order for the bubble to continue, it had to incrementally
increase in parabolic fashion. Once it pops, as it currently has, it
cannot be reinflated. It would be nice if we could print our way to
prosperity, but we deal in a world of reality and facts, not fantasy and
spin. The US is subject to the same economic laws as other countries.
Her position as a dominant military power and the dollar’s status as
the de facto world currency has allowed us to ignore reality for a long
time. But in the end, facts always rule, and spin drools. As a reader
wrote in an email to me last night: there is no such thing as a
“FOMC-insured U.S. Stock Market Account.” Everybody should
remember that as this current rally runs its course. |
