Hello Sonny, maybe you have alrady read this, but I send it, just in case!
"""A Comfortable Finish to a Week of Tumultuous It was a lot like putting on an old pair of your favorite blue
jeans. Friday's session bordered on comfortable, particularly following a week of such turbulence. Investors sought safe haven
in the "good olds" and slipped calmly into a close on one of the more volatile weeks in recent market history.
Monday saw the divergence of two markets venture into new
territory. While the NASDAQ suffered its largest single day
point loss in history at a negative 349.15, the Dow gained just over 300 points. The technology stocks were ravaged as investors bailed out, disheartened by the unresolved Microsoft antitrust case. The verdict came in roughly one hour after the close of the market. The software giant was found guilty of having violated antitrust laws. Many analysts viewed investors' move into the more traditional Dow stocks as potentially short term, citing fear and uncertainty as the catalyst behind the transition. The NASDAQ signed off at 4,223.68 and the Dow closed
its day at 11,221.93.
Tuesday's market was volatile to say the least. The NASDAQ
tanked, losing as much 575 points intraday, 25% underneath its all time closing high set in March. The Dow fell victim to the voracious bears as well, succumbing to an intraday loss of over 500 points. Both the NASDAQ and the Dow staged a miraculous recovery. In a move that left investors gasping for air and clutching their chests, both recovered a healthy portion of the day's losses. The Dow closed at 11,164.84 down 57.09 and the NASDAQ bid a thankful farewell to Tuesday at 4,148.89, down 74.79. Margin calls received a good portion of the blame for
Tuesday's bloodbath. The NASDAQ found itself looking up at some formidable resistance, and a ways from the 5000 milestone it had flirted with not so long ago. Many analysts stepped forward claiming the NASDAQ's plight had not yet ended, and predicted a potentially inevitable retest of the lows in the days to come.
Investors spent Wednesday tentatively dipping their toes back into NASDAQ waters. Some even ventured a few laps in several of the downtroddens, such as the chip and biotech stocks. It was a quiet day on Wall Street, a much welcomed occurrence following two extremely volatile days in the market. Yahoo! announced earnings a penny better than analysts' expectations and doubled sales, setting the stage for a healthy move by the tech's on Thursday. The NASDAQ posted a 20.33 point gain to close at 4,169.22. The Dow lost ground, as the beaten down techs stole
interest away from old economy. The Dow closed at 11,033.92,
down 130.92.
Thursday's session resulted in a convergence of sorts from the two diverging markets. The NASDAQ and the Dow offered nearly identical intraday patterns, and indulged in a day primarily
ruled by the bulls. The tech sector led the way as more buyers
were willing to step up to the plate and take a swing. The Dow
gained 80.35 to close at 11,114.27 and the NASDAQ moved up 98.34
points to 4,267.56. There was a late day pullback and slightly
lighter than average volume for the session, as some investors
proceeded with caution in anticipation of Friday's employment
numbers.
(BIG SIGH!)
Friday at last. The Unemployment figures were released with no
major surprises in tow. The U.S. economy added 416,000 jobs,
which was only slightly above estimates. The unemployment rate
came in unchanged at 4.1%.
The tech stocks continued their rally on the news. Much to the
dismay of Mr. Mobius (I just can't leave that one alone, can I?)
the Internets were amongst the best performers of the day. Many
of the Internet indexes posted healthy gains, including the
Goldman Sachs Internet Index, which gained 4.7% and the Amex
Internet Index, which closed up 4.5%. The online healthcare
companies such as Healtheon/Web MD (HLTH) led the way. HLTH
gained $7.50, or 35% as two individuals, including the companies
founder, Jim Clark, stepped forward to invest an additional $220
million in the company.
Weakness in the financials worked to close the Dow in negative
territory. American Express and JP Morgan took a hand in
dragging the Dow into the red, losing $1.94 and $4.75,
respectively. Alcoa also weighed heavy on the Average, dropping
back $3 to close at $67.94 after Dean Witter cut its earnings
estimates for the company.
Volume remained light throughout the session, as many investors
appeared content to watch the action from the sidelines, rather
than take on any new positions to hold over the weekend.
The NASDAQ finished the week at 4,446.50 up 178.81 for Friday.
The Dow lost 2.79 for the session to close at 11,111.48.
For the week, the NASDAQ lost 126 points while the Dow gained
190.
So here we have been left to ponder the validity of Friday's
market activity. While it was most encouraging, does the current
investor sentiment yield enough positive momentum to carry it
through? Truthfully, we aren't too terribly far off from where
we began.
It was the old favorites, such as Cisco, Dell and yes, even
Microsoft that were the beneficiaries of Friday's bulls. The
upcoming earnings season, which will be peaking in the next few
weeks, may encourage many of the tech stocks. However, many
still have a ways to go before encountering their 52-week highs.
Who could really claim surprise at the NASDAQ's 575 point
intraday plunge on Tuesday? Is it not the momentum driven nature
of the NASDAQ that has attracted so many? It seems only fair
that it should work both ways. And even more so when you
consider the time frame involved. If anything, investors should
be delighted with last week's market performance. If you were
fortunate enough to have taken a long lunch on Tuesday, you may
have not felt but the slightest bit of pain.
You can blame dear Abby (Cohen, of course), Microsoft, or even
the nations ever-faithful economic watch dog, Mr. Greenspan for
the recent instability. In other words, there is an excuse for
each and every day's decline. The fact is we were due for a
pullback. I remain firm in my belief that the ultimate outcome
of all of the volatility will be a strengthened, more realistic
and balanced market. Run on investor emotion, of course. Always
a catch isn't there?
Barring any major unforeseen disasters, I do not believe it
likely that we will see the kind of cataclysmic selling as we did
last Monday and Tuesday. SG Cowen chief investment strategist
Charles Pradilla commented "I'm not saying that it can't happen
again, but these things usually don't follow themselves in
cascade fashion unless there's horrible news." More likely, we
will see continued bouts of profit taking roughing up individual
issues, a sort of natural defense against overly inflated
valuations (as much as there can be).
This earnings season will be crucial to the future of many.
Investors are bound to be less forgiving of companies that fail
to deliver. Surely some will possess a more discerning palate
for the high momentum tech flavors. In my opinion, high
valuations or no, technology still represents the greatest
potential for growth.
Next weeks sees earnings announcements from a nice mix of old and
new economy companies. On Monday, Motorola and Consolidated
Paper will announce. Tuesday, International Paper, Abbott Labs,
Best Foods and Harley Davidson are scheduled. Wednesday is a big
day for Q1 announcements with E-Trade, Ariba, Check Point
Software, Rambus, Seagate, Time Warner, Enron, and Advanced Micro
Devices and JP Morgan amongst those scheduled. Gateway, Sun
Microsystems, Ameritrade, General Motors, Safeway and First Union
will step up to the earnings plate. Friday sees a light schedule
with Boise Cascade, Tribune and Global Marine announcing.
Needless to say, each of the above referenced announcements may
have an impact on the market this week.
Did investors learn their lesson as a result of last week's nose-
dive? Or did last weeks activity have the opposite impact and
leave investors more confidant than ever? After all, the
risk/reward time factor definitely favors the bulls does it not?
We will most likely see evidence of both resulting from recent
happenings. Some investors will spend about ten seconds being
thankful for the plethora of buying opportunities available and
dive right back in to catch the next wave. Others will prefer to
lay a blanket on the sand and venture into the calmer waters only
when the heat becomes unbearable. There are pros and cons to
both approaches. Play it safe no matter what you do. If
anything, last week should have only reinforced your belief in
the importance of playing with stop losses.
Inflation figures are due out next week with the PPI and Core PPI
released on Thursday and the CPI and Core CPI hitting the scene
on Friday. Though analysts continue to point their fingers at
investors' fears of a potential rate hike as a catalyst behind
recent volatility, I think that has already been largely factored
in. We have seen evidence emerge of the rate hikes having the
desired impact. Last week's leading indicator numbers showed
evidence of a slowing economy for the month of February. While
it will probably take a lot more than this to prevent a rate hike
in May, I think a 25 basis point increase is becoming a safer
bet.
It is my belief that the various earnings reports may largely
determine the market direction for the week. I expect we will
see some nervous anticipation of the economic reports due out
Thursday and Friday.
The Dow has been stuck in a rather tight range between 11,000 and
11,200 minus a few brief breaks through on either side. Many
analysts believe the Dow is headed higher from its current level.
I would lean more toward a break below the 11,000 support level,
a few days in the red and a gradual recovery. Though the Dow has
demonstrated some solid strength as of late, I think that the
earnings season has the potential to rough it up a bit in the
near term.
The NASDAQ appears to have reached the top of its short-term
channel. It has immediate resistance between 4450 and 4500. Near
term support is right around 4200. If the NASDAQ is in fact at
the top of its channel, it may be time for another rollover.
Again, earnings could be responsible for delivering the near-term
verdict.
There are some powerful and potentially profitable opportunities
out there. There are bound to be a bushel of potential trend
reversals, or as we prefer to call them, stock bottoms to peruse.
The key will be in confirmation. This is the exact reason we
have a watch list, we like to make sure the fruit is ripe for the
picking. Just like that old pair of blue jeans, comfort will
result from self-discipline.
C. Peters
Asst. Editor |
