From optioninvestor: It's the Market Stupid!
The rally continued with legs good enough to win the Boston
Marathon as tech stocks continued to post better than expected
earnings. Company after company are beating the street and there
is hardly any gloom and doom in the forecasts. The recession fears
appear to be evaporating daily and bears are finding it hard to
continue their sell the bounce routine.
The Nasdaq has now rallied almost +600 points since the April 4th
low of 1619. Just ten trading days and the rate of change is
increasing. The Dow has not been a slowpoke either with almost
a +1600 point gain since the 9106 low on March-22nd. Resistance
levels have been broken and there is a breakout to the upside in
progress. Shorts are running for cover and volume is huge. The
Nasdaq had the biggest volume ever on Wednesday and over 2.7 bil
today. The NYSE managed over 1.4 bln with advancers beating
decliners substantially. Trader heaven!
The leader of the tech race today was IBM, again! Up +15 in the
last two days of trading IBM is seeing new life after finally
breaking over $100. Worries of an earnings miss behind them
there appears to be no speed bumps on the road ahead. Their
product mix appears to be gaining market share from SUNW and
their services business continues to pay the bills.
There were some more blockbuster earnings after the bell tonight.
Microsoft was the leader beating estimates by two cents and not
saying anything too negative on the conference call. Up strongly
the last two days MSFT gained almost +4 in after hours on strong
results. They have numerous new products in the pipeline and said
Windows-2000 was gaining speed in acceptance and profitability.
SUNW also announced results and disappointed the street on revenues
while beating the street on actual earnings. They were seeing
"moderation of demand" on a global basis and the $.08 gain this
qtr was well below the $.13 gain for this time last year. SUNW
was one of the few stocks to lose ground in after hours based on
their earnings.
NT missed estimates that were at the low end of the range from
their previous lowered guidance. Posting a -$.12 loss instead
of the eleven cent loss expected they fell sharply in after hours
but then rallied back to a gain as investors felt the bad news
was fully disclosed.
EBAY roared in after hours after beating estimates by three cents
and raising guidance for next quarter. Sales were up over +80%
from the same quarter last year and said earnings could be as
much as +$15 million higher than previously expected. Citing a
big acceptance of the auction process as a method to buy/sell
almost anything they are actually making money on dead dot.coms.
This morning there were 2,306 Cisco items on auction for pennies
on the dollar. Why pay retail when the same product is available
used? EBAY is proving that there is a viable use for the Internet
and they are leaving the other auction sites in their dust.
Gateway announced huge losses and even bigger charges for various
things but stuck to their estimates for the coming quarters. They
were not very enthusiastic about the coming year but at least not
negative either. GTW did fall slightly in after hours.
Apple Computer continued to post gains today after beating analysts
estimates easily. The back to back AAPL/IBM announcements helped
to provide background stability to the tech rally and even helped
some companies with less than stellar earnings regain lost ground.
PMCS hit twice lowered estimates of $.02 and they gained +8 in
after hours even after saying that sales may not have bottomed
yet. The soft warning projected a bottom within 3-6 months which
must have encouraged investors after the -84% drop in profits.
EMC also managed to post strong gains again and is now up almost
+50% in the last three days. EMC said earnings met estimates but
reaffirmed 2001 revenue growth of +20%. They said they were seeing
a firming in IT budgets and better things were in our future.
In an unusual move a stock came out with a plea to stockholders
to fight traders shorting their stock. MSTR, which had been sold
hard recently and fell to under $3 per share, begged stockholders
to take their shares out of "street name" and basically put shorts
into a squeeze to borrow stock. The strategy worked with MSTR
jumping to a high of $7.17 intraday (a +141% gain) as shorts raced
to cover positions.
Is it the market or is it the economy? Who is really stupid? There
is an increasing question making the rounds today that something
is not right in the current economic picture. Indicators are showing
a bounce, labor is easing, companies are beating estimates and
saying positive things about the future and the Fed is announcing
surprise -.50 rate cuts. Vice Chairman Roger Ferguson is saying
things like "the economic outlook is more uncertain than usual"
and "Fed will be vigilant about cutting rates and has a lot of
room to go in this area." Several analysts feel there will be
another rate cut at the May meeting and even more inter-meeting
cuts after that. The clear message is that the Fed is in control,
but in control of what? The inflation monster is dead, the Internet
bubble is over and stocks are closer to fair value than in any time
in the last three years.
So where is the beef? What does the Fed know that we don't?
While this question is making the rounds we need to consider the
circumstances. Alan cut rates by a larger than normal amount on
a day that the market was already in rally mode from positive
earnings. He clearly wanted to provide the markets a huge boost.
By cutting rates on a strong rally day when shorts were already
under pressure he created an even bigger short squeeze and the
result has been amazing. Now do you really believe that was
simply a coincidence? Not on your life. It was carefully planned
and orchestrated. Now why did he do it? It is the market stupid!
The market has been credited with almost single handedly
causing the recession for the consumer. The negative wealth effect
was killing consumer demand and consumer sentiment. How do you
combat that? By juicing the markets and making retail investors
breathe easier. Investors were putting houses on the market,
selling luxury cars and pulling back on discretionary purchases.
Alan is attempting to put money back into investors accounts and
take the pressure off the dinner conversations in families
everywhere. Do you think maybe George Bush "suggested" he take
some of the heat off voters? Did George need that falling tax
revenue to rebound and pay for his tax cuts? Who knows but for
whatever the reason, keep it up Alan! We are glad to have you
back on our side!
As traders we are now faced with a market that has exploded
and many stocks are up +25% to +50% in some cases. Are they
now over valued? I don't think so but the temptation to take
profits is getting stronger with every day that passes. Do we
jump in now and possibly get hit with an immediate drop or
do we wait for a possible pull back and chance missing a
continued explosive rally? Good question Regis. I would like
to poll the audience, use my lifeline AND use my 50/50 option
before making that decision. We all feel that the markets
will continue up from here. Sure there were analysts on TV
today saying that we would see another retest of the lows but
that may be just wishful thinking by people who missed the
train already. Personally, I will wait until next week and
take my chances. If you want to buy today then consider also
buying a protective put as well. For instance you can buy an
October-$20 call on CSCO for $3.40 and a May-$17.50 put for
$1.40. Your potential loss is limited and your upside is only
impacted by the $1.40 spent for insurance. Think about it.
Enter VERY passively, exit VERY aggressively! |
