Todays IBD Big Picture...
The Big Picture
Monday, June 18, 2001
Printer-Ready Version
Indexes Fall On Witching-Fueled Volume Surge
Investor's Business Daily
Stocks recovered somewhat from a morning sell-off Friday. But the major indexes still finished lower on a triple-witching surge in volume.
Nortel Networks (NT) dominated a full plate of profit warnings. The Canadian supplier of telecom equipment stunned Wall Street with 10,000 job cuts on top of the 20,000 already on the way out. Projections of a 6-cent per-share loss ballooned to 48 cents for the second quarter. The stock tumbled as much as 17% and closed down 0.74, or 7%, at 9.86.
That and warnings from JDS Uniphase (JDSU), International Rectifier (IRF), Adobe (ADBE) and others fouled the market’s mood. The Nasdaq fell as much as 2.5%. The Dow industrials lost 1.2% early on.
But even some bad news got a good spin. Industrial production slid 0.8% in May, the eighth straight decline. The government also revised the prior two months lower. What’s so good about that? It gives the Fed more reasons to cut interest rates when it meets later this month. Alan Greenspan won’t be hampered by any inflation worries. Core consumer prices rose a tame 0.1%.
The futures market thinks a quarter-point cut is a lock, according to economy.com. Traders put the chance of a half-point reduction in the fed funds rate at 36%.
With hopes of rate cuts leavening the profit warnings, the market pulled out of its slide within a half-hour of the opening bell. The Nasdaq finished down 0.8%. Despite drops of more than 2 points for United Technologies (UTX), Procter & Gamble (PG) and IBM (IBM), the Dow fell only 0.6%. The S&P 500 gave up 0.5%.
Smaller stocks showed more resilience. The S&P MidCap 400 recovered to close down a fraction of a point. The small-cap Russell 2000 did the same. The Russell has lost 4.8% from its recent peak. The S&P 500’s big caps are down 7.7%.
A triple-witching expiration of options and futures skewed volume on the equity markets. Nasdaq trading exceeded 2 billion shares for the first time in 3 1/2 weeks. NYSE volume hadn’t shot above 1.6 billion shares in almost two months.
Although the indexes closed off their lows, declining stocks and down volume held leads over advances and up volume. Chalk up another day of distribution.
Despite the dismal week, some of the early market leaders are showing their mettle.
AmeriCredit (ACF), which gained 45% after bolting out of a base-on-base April 12, capped a third straight week of declines. But on Friday it bounced off its 50-day for a second session. This implies the stock is finding support as institutions add shares to their existing positions. ResMed (RMD), a May 2 breakout, is also respecting its 50-day.
Women’s fashion retailer Charlotte Russe (CHIC), however, passed through its 50-day three weeks ago. On Friday it slumped 1.85 to 23.15, just 1.50 points shy of its 200-day moving average. After more than doubling in the first 4 1/2 months of the year, it’s now 41% off its high of 39.64.
Keep an eye out for stocks that refuse to buckle under the weight of the market. When this correction ends, they may be the first to break out again and resume their uptrends. |
