5/19--->Fear still grips Wall Street Can the Nasdaq hold April lows?
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By Julie Rannazzisi, CBS MarketWatch
Last Update: 7:01 PM ET May 19, 2000 Market Pulse
Bond Report
NEW YORK (CBS.MW) -- The week started out well and ended ugly for the market, with sellers showing up in just about every sector by Friday.
While the breakdown in many technology leaders by the end of the week made many market observers nervous, the Nasdaq's ability to stay above key support levels gave others reason to believe that the current trading range will hold and that the April lows may be intact for now.
Terry Gabriel, technical analyst at IDEAglobal.com, observed that the Nasdaq's three-day decline this week was the third such episode since the mid-April market rout.
During each of these previous three-day declines, the Nasdaq has established higher lows. Whether this constructive trend remains intact this time around depends on Monday's price action, of course. So far so good, however, as the Nasdaq managed to close Friday above support at 3,367 -- the intra-day low set on May 10, which marked the conclusion of the previous three-day selling episode.
Further, Gabriel said many momentum stocks are establishing higher lows, another positive sign.
But the risk of piercing the lows of the year set in mid-April remains high. Should that happen, Gabriel said, the next leg down would be swift and violent.
"If we can hold support, we may [be able] to stabilize and dodge another bullet," Gabriel said.
"The market starts next week perched just above support on the Nasdaq. The week will answer the question of whether or not the Nasdaq is in a bottoming pattern, or beginning another leg to the downside," said Robert Dickey, chief technical analyst at Dain Rauscher Wessels.
"Holding and bouncing off this area for the next few days would be positive, and would increase the strength of the support level. The weaker action in some of the old-line tech stocks is a concern, but the Nasdaq is holding so far," he continued.
The Dow inched up 0.2 percent this week and is off 7.6 percent for the year.
On the week, the Nasdaq fell 3.9 percent and is down 16.7 percent for the year.
Keeping the range
Observers point out that the range will remain king for the foreseeable future.
"The reality [is that] we're in a trading range. The market's [recent] four-day rally came on light volume. That's not real buying and, consequently, it's easy for prices to fall. But when they fall, at least so far, they've fallen on light volume -- and that's not real selling. No real buying and no real selling means a trading range, almost regardless of the news background," remarked Frank Gretz, chief market analyst at Shields & Co.
"Maintaining the range is probably the best we can do right now," Gabriel conceded.
Volume keeps getting lower and there's not a lot of resolve to buy, he added. "The weak hands bail out and the institutions are sidelined."
Without a catalyst to get people to return to the market, the dearth of liquidity makes for wild -- and sometimes scary -- prices swings. But with interest-rate jitters so acute, pundits don't expect volatility to leave anytime soon.
Upcoming events
Monday: No data.
Tuesday: No data.
Wednesday: No data.
Thursday: Revision to first-quarter gross domestic product, weekly initial claims and April existing home sales.
Friday: April durable goods orders, April personal income and personal consumption expenditures.
Earnings watch
Most of next week's limited number of earnings releases will be from retailers and apparel makers. By the end of next week, all but four of the S&P 500 companies will have reported their first-quarter results, according to First Call.
With most of the S&P 500 companies having reported, First Call said the earnings growth rate stands at 23.7 percent -- the fastest since the fourth-quarter of 1993.
Earnings for the first quarter came in, on average, 5.8 percent above expectations, First Call noted. If the better-than-average trends on earnings revisions, pre-announcements, and surprises continue into July, the final earnings growth number for the second quarter of the year is likely to be about 23 percent, the earnings compiler said.
Monday: Net2Phone
Tuesday: Intuit, Novell, VA Linux, Autozone, Toll Brothers, Genesco, Fluor, Bombardier and British Airways.
Wednesday: GetThere.com, JD Edwards, Costco, Neiman-Marcus, Michaels Stores, Harcourt General, Bank of Montreal, Veritas DGC, Pall and Medtronic.
Thursday: Sunglass Hut, Ultimate Electronics, Petsmart, Polo Ralph Lauren, Tom Hilfiger, Blyth, Brown-Forman, National Bank of Canada, Westvaco, Quanex, Cooper and Patterson Dental
Friday: No releases.
Weekly recap
Monday: Heated buying interest in many of the Dow Industrials' old-economy components pushed the index sharply higher. Nasdaq stocks managed to reverse earlier losses in late afternoon trading as investors put aside their interest rate concerns and went hunting for bargains in the technology sector. Dow puts on 198.41 points, or 1.9 percent, to 10,807.78 while Nasdaq jumps 78.59 points, or 2.2 percent, to 3,607.65.
Tuesday: Equity prices held on to handsome gains following the Federal Reserve's decision to hike short-term interest rates by 1/2 percent. Volatile price action took place immediately after the central bank's move and some interest-rate sensitive sectors slipped into the minus column. Dow rises 126.79 points, or 1.2 percent, to 10,934.57, Nasdaq adds 109.92 points, or 3.0 percent, to 3,717.57.
Wednesday: Stocks lost ground, interrupting a four-day winning streak, as buyers sat on the fence and pondered what the Federal Reserve's 50-basis-point rate increase will mean for corporate earnings going forward. Dow tumbles 164.83 points, or 1.5 percent, to 10,769.74, Nasdaq loses 72.61 points, or 2.0 percent, to 3,644.96.
Thursday: A late-afternoon bout of selling took the Nasdaq Composite sharply lower and erased the brunt of the Dow Industrials' earlier gains. The session was spent in a tight range with most of the buying interest concentrated in the bank, retail and utility sectors. Dow inches up 7.54 points, or 0.1 percent, to 10,777.28, Nasdaq falls 106.25 points, or 2.9 percent, to 3,538.71.
Friday's trading activity
It was another dismal day for the major averages Friday as sellers, concerned about valuations and future rate hikes, sold stocks with a vengeance, particularly in the technology arena.
Inside the tech arena, chip, networking and Internet stocks came under the heaviest selling pressure. The broader market saw the largest declines in biotech, bank, brokerage and airline stocks. Only safe-haven areas such as the utilities and the drugs were positive.
The Dow Industrials dropped 150.43 points, or 1.4 percent, to 10,626.85.
Shares of Hewlett-Packard, Intel, United Technologies, SBC Communications and J.P. Morgan were the Dow's downside leaders. On the upside were shares of Caterpillar, Merck and Philip Morris.
"The market is now realizing that the Fed will be more aggressive in tightening than previously thought and that price-to-earnings ratios still need to come down," said Mike Vogelzang, president and chief investment officer at Boston Advisors.
A crack in the big names, such as Cisco Systems, signals that there's more downward pressure in the offing, Vogelzang said.
And many market technicians don't like the chart patterns they see.
"Former bull market glamours such as Oracle, Sun Microsystems and Intel are leading -- on the way down -- and may accelerate their declines from here," said Jeff Cooper, co-founder of tradingmarkets.com.
"The three amigos each show failing rallies at their 50-day moving averages.What leaves them so vulnerable is the pattern of three lower highs. Fast declines often begin from the third lower high," Cooper said.
The Nasdaq Composite fell for the third straight session, plunging 148.31 points, or 4.2 percent, to 3,390.40 while the Nasdaq 100 index ($NDX) dropped 165.71 points, or 4.8 percent, to 3,260.64. (See 6-month chart of indexes.)
Friday's tech selling was broad-based, whacking even companies that posted better-than-expected quarterly results, such as Ciena and Sycamore Networks.
The Standard & Poor's 500 Index declined 2.1 percent while the Russell 2000 Index of small-capitalization stocks lost 2.3 percent.
Volume was on the light side, coming in at 856 million on the NYSE and at 1.36 billion on the Nasdaq Stock Market. Breadth was horrible, with decliners outnumbering advancers by 19 to 9 on the NYSE and by 29 to 12 on the Nasdaq.
Where's the catalyst?
There's no economic data of significance to provide new clues on the state of the U.S. economy over the next couple of weeks and the earnings season is coming to an end. Thus, without a catalyst to give the market the support it needs over the short-term, observers expect a tight trading range to hold over the next weeks.
And the continued light volume indicates that removing the uncertainty of the Fed's action this week has failed to push market participants off the fence.
"The reasons to buy stocks are few at the moment, with many investors resigned to waiting for the next string of economic reports leading to the Fed meeting at the end of June," said Dickey of Dain Rauscher Wessels.
"A robust earnings season for the first quarter is not likely to be repeated for the next quarter -- though the early expectations are still quite good. The market appears to be quietly waiting for a catalyst, which may not be evident for the next month or longer," Dickey continued.
Specific movers
Chip behemoth Intel fell 6 1/16 to 117 7/8 and was one of the Dow's downside leaders. Some say the stock is being hurt by the chip maker's 10-Q filing, in which company downwardly revised first-quarter results to reflect a revenue reserve for products sold prior to the end of the first quarter that may be returned from customers. The revisions had a net impact on earnings per share of 1 cent. The filing, however, was from two days ago. See Market Pulse.
Ciena (CIEN: news, msgs) dropped 20 13/16 to 116 1/2. Late Thursday, the company checked in with second-quarter earnings of 12 cents per share, beating the First Call estimate of 10 cents a share. The company broke even in the same quarter last year. See full story.
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5/21/2000 1:39:08 PM ET
Shares of Sycamore Networks (SCMR: news, msgs) lost 11 5/16 to 80 15/16. Late Thursday, the company made 5 cents a share in its third quarter, beating the First Call estimate by 2 cents a share. Wit SoundView raised its 12-month price target on the stock to $150 from $120. See Rating Revisions.
Network Appliance (NTAP: news, msgs) registered fourth-quarter earnings of 7 cents a share late Thursday, which compared to the First Call estimate of 6 cents a share. The company earned 3 cents a share in the year-ago period. The stock fell 3 7/8 to 65 1/8. The company was upgraded by Salomon Smith Barney to a "buy" from an "outperform" rating while A.G. Edwards upped the company to a "buy" from an "accumulate."
Ciena, Sycamore and Network Appliance are all components of Merrill Lynch's Internet Architecture Holdrs (IAH: news, msgs), which fell 3.4 percent following a 2.4 percent fall on Thursday.
Shares of WorldCom (WCOM: news, msgs) lost 1 13/16 to 37 3/4, extending Thursday's declines, which came on news that Justice Department investigators are reportedly prepared to recommend against WorldCom's $115 billion purchase of Sprint amid concerns about market concentration in the long-distance and Internet-backbone businesses. Shares of Sprint (FON: news, msgs) fell 1 7/8 to 54 3/8.
In other news, WorldCom sold a $5.0 billion global offering Friday made up of four separate tranches in the three-, 6- and 10-year sectors. A $1.5 billion 18-month portion was also sold. The deal, which was upped from original levels, saw handsome demand and traded at higher levels in the secondary market.
Merrill Lynch's Telecom Holdrs (TTH: news, msgs), of which Sprint and WorldCom are components, fell 4.0 percent. The trust is off about 18 percent since it began trading in early February.
Among the upside movers Friday were shares of Commerce One (CMRC: news, msgs), which added 7/8 to 44. The Wall Street Journal reported that Commerce One was close to signing a deal with Germany's SAP (SAP: news, msgs), Europe's largest software company.Merrill Lynch's B2B Holdrs (BHH: news, msgs), of which Commerce One is a component, fell 4.7 percent.
Kana Communications (KANA: news, msgs) rose 3 3/4 to 43 1/4. ING Barings upped the company to a "strong buy" rating from a "buy."
Portal Software (PRSF: news, msgs) surged 8 1/8, or about 21 percent, to 47 1/8 and was one stock that benefited from a positive earnings report. Late Thursday, the company made 2 cents a share compared to the First Call estimate of a loss of 1 cent a share.
Both Kana and Portal Software are components of Merrill's Internet Infrastructure Holdrs (IIH: news, msgs), which fell 4.3 percent.
Shares of EGreetings Network (EGRT: news, msgs) soared 1 7/32, or 51 percent, to 3 19/32. The online card company said it's going to handle e-card services for Microsoft's MSN sites, a deal the company expects will bring in "significant" revenue. See full story. Shares of Microsoft (MSFT: news, msgs) shed 1 1/8 to 65 1/16.
Borders Group (BGP: news, msgs) checked in Friday with a first-quarter loss of a penny a share, in line with the First Call consensus estimate. The stock edged down 3/8 to 15 5/8.
Autodesk (ADSK: news, msgs) slipped 3 1/16 to 35 9/16. The company posted late Thursday pro forma first-quarter earnings of 48 cents per share, beating the First Call estimate of 46 cents a share. The company made 15 cents a share in the year-ago period.
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Intl' Indexes
Bond prices turned higher in afternoon trading, receiving support from the fallout in the equity market.
The government market has suffered in recent sessions as it ponders last Tuesday's Fed rate hike and future Fed actions.
On Friday, hawkish comments from New York Fed president William McDonough hurt the fixed-income market early in the session.
The 10-year Treasury note edged up 9/32 to yield 6.51 percent and the 30-year bond edged up 3/32 to yield 6.23 percent. See Bond Report.
On the economic front, Friday saw the release of the March trade numbers, which again revealed a record deficit of $30.18 billion in March. A survey of economists conducted by CBS MarketWatch.com expected a $29.4 billion deficit. Steamy consumer demand and higher oil costs were behind the record deficit numbers. Read the story. Meanwhile, the February trade deficit numbers were downwardly revised to $28.71 billion from $29.24 billion. See economic calendar and forecasts and historical economic data.
In currency markets, the dollar lost significant ground on the heels of the bruising sell off in equities. The record trade number also put a damper in the greenback. Dollar/yen fell 1.4 percent to 106.95 while euro/dollar rose 0.5 percent to 0.8987, reversing earlier losses.
In the commodity market, June crude lost 44 cents to $29.89 after rising to a high of $30.52 in intra-day dealings Thursday. The Bridge CRB index put on 1.34 to 223.35. View latest commodity prices. |
