Return To Fantasy-Land -->
From Prudentbear.com
Market Summary July 12, 2001
Posted Daily Between 5 and 6:30 PM EST
by Lance Lewis
Return To Fantasy-Land
Asia was higher last night off of the MSFT euphoria over here in after hours. Europe was up a percent, and the futures in the US were smoking to the upside. We gapped up huge and immediately began rallying. The remainder of the day was spent slowly edging higher all day to send us out right on the high of the day. Like with a Fed rate cut, most of this rally took place in the 1 or 2 minutes of the initial reaction to MSFT. The S&Ps were up 3 percent from yesterday but only a percent was done after the open today. Meanwhile, down in Argentina things were going in the opposite direction. Argentina’s market was down 13 percent at one point today (and below their 1998 low) but a late bounce that coincided with our late push managed to cut that loss to only 3 percent. But a late slide saw Argentina slip again to end down 8 percent (more on Argentina’s woes below.) Volume was beefy (1.4 bil on the NYSE and 1.9 bil on the NASDAQ.) Breadth was 2 to 1 positive on the NASDAQ and slightly less than that on the NYSE. The top sector winner of the day was the Internuts as the INX rose 9 percent. The top loser was the oil services as the OSX fell 5 percent.
When MSFT cut rates last night... Oh wait, scratch that. It appears in actuality they only mentioned that they were going to beat their revenue number by a percent or so but that unfortunately they were also taking a charge due to investment losses that was about half that total revenue. That news was reacted to in the futures with a straight up move as if the Fed had suddenly cut another half point. I guess everybody got it into their heads that this was evidence of the fabled second half recovery? Who knows? In any event, MSFT launched 8 percent on the news. Yet, MSFT could still not take out its June high even after now having two pieces of “glorious” news? The problem with MSFT is its valuation and the condition of the PC business. PCs are a mature industry, and sales are in decline, yet MSFT is trading at 40x earnings as if happy PC days are here again. They’re not, and Windows XP is not going to be the savior that many seem to think it is, but nobody cared about that for today at least. MOT also reported their loss last night (which was even more than they lost last quarter) and said they were hopeful for a Q4 recovery. That just added more fuel to the MSFT/second half euphoria. Funny enough, MOT is so confident of this recovery that they announced this morning that they were laying off another 3 percent of their workforce (so that they can rehire them later when that sudden surge in demand occurs later this year I guess?) STM was out this morning over in Europe and also said they were hopeful for a Q3 bottom. Then finally, YHOO announced they had made a pro forma penny (i.e.- an imaginary penny.) All that set up one big hope party by the time we opened up, and everything was screaming to the upside. Even the semi equipment maker AEIS, which threw in the towel on the second half by saying “At this point, we do not have evidence from our customer base that there will be any significant change in order demand over the remainder of 2001,” managed to rally. It was one of those days where nothing really mattered except for the fact that it was time buy them as everybody collectively took a trip to fantasy-land. Financials were smoking to the upside as well. The BKX rose 2 percent, and the XBD rose 6 percent. GE reported this morning and only met their earnings estimate instead of beating it by the usual penny (that makes 2 quarters in a row now I believe), but revenue was down year over year for the first time that I can recall. Nobody cared about that today though as GE rose 5 percent. I do find it somewhat poetic that Jack Welch came to GE in 1981 just before the great bull market began, and is now leaving in 2001, just as the great bull market has ended. You’ve got to hand it to the guy. He’s got great timing.
Oil fell 31 cents. The XOI rose a hair, and the OSX fell another 5 percent, as the oil services crash continues. Gold fell $1.70, and lease rates slipped a touch. The HUI fell 2 percent. The US dollar index bounced a touch. The euro slipped back to just above the 85-cent level. Treasuries were higher due to a flight to "quality" bid as fears continued to swirl over Argentina possibly defaulting on her debt. Argentina has $128 bil in dollar bonds alone, 1/5th of all outstanding emerging market bonds. Since Argentina has more than twice what Russia had outstanding when it defaulted back in 1998, the consequences of a default would be ugly to say the least. The problems in South America have been developing for a while now. It’s funny, but just like the Asian crisis in 1997 or Russia in 1998, nobody here seems to care until things start to crash, which has already in fact begun in Argentina.
After a huge gap higher like we had today, I find it very hard to believe that the bulls can keep this going for very long with sentiment already so skewed to the bullish side like it is. Investor’s Intelligence numbers yesterday showed that bulls had risen again to 51%, and bears had slipped to 25%. Additionally, the put/call ratio today remained below .5 all day. But we’ll just have to see. A day like today proves once again that the ability of this market to blindly hope certainly cannot be underestimated. |
