Friday's prudentbear! -->
Market Summary July 06, 2001
Posted Daily Between 5 and 6:30 PM EST
by Lance Lewis
FANTASY / (BMC+ AMD + EMC) = BID WANTED
Asia was lower last night by about 2 percent as Japan (like every
other major world index) is nearing its March lows. Europe was
off 2 percent, and the US futures were down but off their lows
after the employment number. Stocks were smacked pretty
good in the “run-off” yesterday so a gap down was set up even
with the futures only down slightly in the pre-market. We
gapped down at the open, took a little stutter step, and then
hopped off a cliff. We found support down around 1200 on the
S&Ps and then took another little dive below that to give us the
low for the morning, which was down a little more than 2
percent. We spent the rest of the day flopping around on the
lows and tried to sell off in a marginal move to new lows with
about an hour and a half to go, but the usual rally was attempted
as we got into the final hour. That rally never could get going
though, and by the close we were sliding to new lows for the day
to go out right on the low. Volume was OK (1 bil on the NYSE
and 1.4 bil on the NASDAQ.) Breadth was 2 to 1 negative on
both exchanges. The big sector winner (there weren’t many)
was a tie between the golds and natural gas as the HUI and XNG
were both up a percent. The big sector loser was the
semiconductors as the SOX was smoked for 9 percent.
AMD puked up a hairball last night saying that sales would be
down sequentially about double what everybody was expecting
and that earnings would be about a tenth of what everybody
was looking for. AMD cited a deteriorating flash market as well
as pricing pressure in the PC processor market (duh).
Understandably, that information had a few people upset that
had made their second half recovery bet in AMD. The ensuing
stampede to the exits saw AMD hammered for 27 percent.
Storage king EMC was also given the truth serum last night and
was forced to spit up a hairball. EMC warned of significant
misses in both revenue and earnings saying, “EMC's business
is being impacted to a degree with each unanticipated
downward step in the global economy. It now appears that there
are fewer dollars being invested in information technology than
a year ago… The earnings results for EMC's major customers -
the bulk of the S&P 500, for example - have been like a ball
rolling down a hill for each of the past three quarters. When our
customers earn less money, most of them have less to spend on
IT, and they take a longer time to spend what they do have. That
means lowered revenue and profitability for EMC.” It appears
EMC had a bit of an epiphany in the last couple weeks in
understanding that as companies make less they spend less,
particularly on IT where everybody has already over-invested.
Just a few weeks ago back on the 13th of June, EMC’s Executive
Chairman was at a Bear Stearns Tech conference where he not
only said EMC was not going to warn, but also said that EMC
wasn’t seeing any softness in Asia and was seeing “IT budgets
continuing to firm.” Hmmm, it appears he was either
misinformed, or things fell apart pretty fast in the last few
weeks? In either event, those that chose EMC as their second
half horse were understandably disappointed with this
revelation and dumped the stock for 28 percent. Software maker
BMC also warned last night and was whacked for 9 percent.
When everybody’s recovery fantasy was divided by the reality of
all this bad news, what we got from the “equals” sign was a
debacle. AMD’s warning rocked the semis and the semi
equipment shares. The SOX itself was down 9 percent putting
us cleanly below the 600-level that has been support for the last
few months. EMC’s warning had the entire storage sector under
heavy fire. BRCD, which sells to EMC, was trashed for 22
percent. Even the seemingly invincible IBM came under the
general tech fire that was chewing up the tape. IBM slumped 5
percent after an article in Grant’s Interest Rate Observer pointed
out that IBM is not immune to the problems that every other tech
company is having, which we have discussed here too many
times to count. The fact that so many people think IBM is a
“safe” tech stock to own because it hasn’t collapsed yet has to
be one of the crueler jokes that the bear market has played on
people thus far. Once again, it was an all-around rout in
technology, and we actually saw some acceleration down for
once as well. Financials were broadly lower as well. The BKX
fell 2 percent, and the XBD fell 3 percent. GE fell 3 percent, and
credit card shares were generally off 3 percent as well. Retailers
also joined in the slide with the RLX falling 3 percent. In the
cyclical area, AA reported blowout numbers this morning but
was sold and ended down 2 percent. So, MMM’s rally earlier this
week on its bad news may have been a head fake in the
cyclicals.
Oil rose more than a buck (4 percent) to $28.21, and natural gas
rose 3 percent. The XOI fell a hair, and the OSX rose a hair.
Gold rallied 80 cents, and lease rates edged up slightly for the
first time in weeks. The HUI rose a percent. Trader’s
commitments are not available till Monday due to the July 4th
holiday for those that are looking for them here. The US dollar
index fell a percent to give back yesterday’s big gain ahead of
this weekend’s G-7 meeting. Currency could be a point of
discussion this weekend. I expect the US to be forced to
devalue the dollar at some point, but who knows when that will
be. The euro managed to retake yesterday’s loss, thus saving it
from a humiliating downgrade back to the “zero” by myself. The
yen managed to not go down and ended near unchanged.
Treasuries were a little higher but remained within yesterday’s
trading range after the unemployment number showed jobless
claims bumped up a bit in June but still came in below the
consensus estimate.
We end the week with major indexes all over the planet near their
March/April lows. Some, like Finland, closed below those lows. Todays
slide signals to me that there could be big trouble for stocks over the next
couple weeks. Today’s damage was on fairly light volume because sellers
are not very aggressive yet, but buyers aren’t showing up either.
Consequently, prices are falling. When sellers actually start to dump shares
with authority, we could really see some sparks fly. Q3 guidance is not
going to be pretty, and that may force Q3 recovery fantasy believers to throw
in the towel. It may well even cause Q4 believers to throw in the towel, but
we’ll have to see. As I said yesterday, this market’s ability to suspend reality
and believe in complete nonsense, like the second half recovery, is probably
unprecedented. Consequently, we could potentially hang on till the Fall
before any really ugly damage is done to stocks (to date, this bear has been
pretty tame), but there’s certainly the potential to see things fall apart right
here and now. |
