Today's prudentbear -->
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"I think with today’s move, it’s safe to say that the rally off the March low is now officially over, and the next big move will be lower and not higher."
Market Summary May 30, 2001
Posted Daily Between 5 and 6:30 PM EST
by Lance Lewis
from prudentbear.com
Land Of The Sinking SUNW
Asia was lower last night as Japan and Hong Kong both fell 2 percent. Europe was down a percent this morning, and the US futures were off (in addition to losses in the futures during the run-off just after the close yesterday) on the back of SUNW’s warning last night. We gapped down at the open, and the dippers immediately went to work. But supply overwhelmed them, and we rolled over to new lows for the day. From there it was a steady grind lower till about two hours to go when a rally was attempted. By the last hour, the buyers had run out of steam once again, and we fell back to the lows and stayed there for the close. Volume picked up a little (1.2 bil on the NYSE and 1.9 bil on the NASDAQ.) Breadth was 2 to 1 negative on the NYSE and just shy of 3 to 1 negative on the NASDAQ. Big winners were so hard to find that they’re not worth mentioning. Big losers were in the networking shares as the NWX fell 7 percent.
As we discussed yesterday, SUNW warned last night, which was no big surprise unless you had been asleep for the last couple quarters. Radioshack (RSH) warned last night that sales were coming in below par for Q2, and that seemed to grease the tracks for anything related to handsets to slide lower since that is such a big chunk of their sales. ALA also warned this morning after talks with LU broke down yesterday for a double dose of bad news. With all that data out, the sellers went to work on tech. SUNW was ripped for 13 percent. RSH was slapped for 18 percent, and in the handset arena, NOK and ERICY both slipped around 7 percent. Chip suppliers to that area were also lower as RFMD and TQNT were both nailed for 11 percent and TXN was spanked for 9 percent. The SOX fell 6 percent on the day as semi and semi equips were dumped again. Basically, I think people may be finally beginning to come to grips with the fact that the second half recovery is a myth, which makes stock prices at these levels look pretty silly. That’s why news that is not so surprising like the warnings out of SUNW, RSH, and ALA can do so much damage once psychology begins to turn. At some point, people will be overly pessimistic on technology, but we’ve got a long way to go for that level to be reached. Financials were lower as the BKX fell a percent, and the XBD fell 3 percent. GE slipped a percent. Credit cards were generally off a touch.
Oil fell 11 cents. The XOI fell a hair, and the OSX fell 3 percent. Gold was smoked for almost 8 bucks, and lease rates backed off a touch again. Gold has now given up all of its gains from the big rally back on the 18th. The HUI slipped 5 percent. The US dollar index rose a hair, still floating around the 118 area. The zero managed to tread water around the 85-cent level for the fourth day, and the yen continued to digest its gains from last week. Treasuries were uncharacteristically quiet with equities under so much pressure as the long end continues to sit near its lows and to be unable to even bounce. This may have something to do with noises coming out of Japan of late. My friend John Mesrobian pointed out an article a couple weeks ago in the LA Times by Kenichi Ohmae, who is advising Japan’s new Prime Minister on economic matters. The article basically warned that Japan’s financial institutions may be forced liquidate their US assets in the next few months (the Japanese own 10 percent of US treasuries and are the largest foreign holders) in order to clean up their chronic banking problems. Now, that article in and of itself means nothing. But may be worth giving a little credence to when taken together with the sharp rally in the yen last week, the inability of the bond market to rally over the last few days, recent statements by the Japanese government reflecting on the possibility of using Japan’s foreign reserves as well as foreign assets to clean up their banking mess, and the fact that high level Japanese government officials are in Washington today meeting with Secretary O’Neill and will meet with Uncle Al tomorrow. If the market is beginning to sniff out that the Japanese are planning to sell their US treasury holdings, it would certainly explain a great many things. Obviously, such a move by the Japanese would have grave implications for US financial assets. On the flip side, it might be just what the doctor ordered to help Japan out of its 10 year funk.
So, bad news appears to be bad news again as the psychology of hope for a second half rebound gives way to once again dealing with the reality of deteriorating business conditions and massive overvaluation in the stock market, especially in light of the rapid rise in bonds yields over the last few months. The catalyst may be Europe’s accelerating deterioration, but the problems began here and are still here. I think with today’s move, it’s safe to say that the rally off the March low is now officially over, and the next big move will be lower and not higher. Now, that doesn’t mean that we can’t bounce tomorrow, but I would expect things to deteriorate progressively from here as we get into the thick of Q2 preannouncements. The next big test will likely be for the bulls to try and hold us above the March lows. I expect those levels to give way, but we’ve got a ways to go before we need to think about that. We’ll just jump off that bridge when we come to it. |
