March 01, 2001
Posted by mishedlo on Greg's thread
by Lance Lewis
IBM Lie Sparks Rebound
Asia was shelled again last night as Hong Kong fell 3 percent, and Japan fell another 2 percent to another new low. Europe was off a percent this morning. The futures were a little lower after GTW warned last night. We gapped down at the open once again and then gradually drove lower throughout the day till about 2 hours to go when they finally got AMCC opened (it warned mid-day and the stock was halted), and the bad news buyers were in doing their thing to turn it green. HeeHaw reported that the stock was up and that seemed to bring in more buyers. Then, HeeHaw passed on a rumor that somebody had fed them (that likely had stock to unload) that IBM had said at a Cowen tech conference that their quarter was on track. IBM went vertical on that, and then everybody was scrambling to buy because this was the bottom. From there, we went vertical into the close and ended unchanged. It turns out that there was no Cowen tech conference, and IBM denied the whole thing after the close, not that reality matters to anybody these days. I don't think most people will understand the reality of the situation until they're hit over the head with a general market collapse because price action is the only thing they understand. It doesn't matter how many companies come out and warn, or how much bearish economic data they read. It comes down to one thing: their stocks all go down. Volume picked up again (1.3 bil on the NYSE and 2.2 bil on the Naz.) Breadth was slightly negative on the Naz, and barely negative on the NYSE after both were strongly negative early on. Big winners were in the semis as the SOX gained 5 percent. Big losers were in the airlines as the XAL fell 4 percent.
GTW warned last night and said that results would be breakeven for the first half, but they (like everybody else) hoped for a turnaround in the second half – emphasis on hope. GTW ended down 8 percent. We also had warnings out of COMS, IM, and LRCX. GLW also announced layoffs. All that bad news had things rocking to the downside in tech early on. AMCC guided revenue lower by 20 percent during the middle of an interview on HeeHaw about mid-day, and that caused some more general selling. When the stock finally reopened, it traded down slightly and then in came the shorts to cover, and the bad news buyers piled on from there. That generally made everybody feel better and when the IBM lie made the rounds, everything started rocking as buying pandemonium broke out. There’s not a whole lot to say other than the fact that some shorts were played like harps. I should note that AMAT hit a new low for the move today despite it supposedly "bottoming" a few weeks ago because it rallied off of its warning. So, keep that in mind when you are tempted to chase some of this garbage simply because it goes up and "acts" good. Financials were lower across the board (although off their lows like everything else), but they remained in the red even as tech rallied, which should bother you if you are bullish. The BKX and XBD both ended down a touch. The big boy, GE, ended down a percent. Retailers were lower again as the RLX fell 3 percent.
Oil rallied 23 cents after OPEC threatened to cut production again if their oil price basket fell another dollar from current levels. The XOI rose a percent, and the OSX rose a touch. Hiding in these stocks is not a good idea. I know I’ve said this before, but I've gotten several emails about oil shares. When stocks break hard and for real (you’ll know because the Dow will go through 10,000 like it was butter), oil will fall to discount the demand shock that will result from a US recession. Thus, the oil shares will come under pressure as well. So, I'm not a big fan of oil shares at these prices. That doesn't mean they might not be worth buying later on because I do think as the dollar comes under more pressure that oil will do well in the long run. Gold fell $1.60 to $266.20. The HUI traded down a couple percent early this morning but recovered to only end down a touch. A move higher by the metal and the shares into the weekend tomorrow could set us up for some fireworks on Monday. The dollar was lower again as the US dollar index fell a percent. The euro traded to back up above the 93-cent mark. Treasuries were up a touch. The NAPM index edged up to 41.9 last month from a decade-low of 41.2 in Jan. So, while the manufacturing sector is still in contraction, it did see a bit of a bounce in Feb. That bounce gives the Fed little in the way of an economic excuse to cut rates before their regular meeting, not they’ll need one if stocks crack big. The NAPM said the prices paid component slipped a little, which brought out the "there’s no inflation" crowd again. Right along side that on the wires was Dow Jones announcing today that they were raising the price of the Wall Street Journal by 33%. Good thing there is no inflation, right?
Yesterday was the first monthly close for the SPX below its 40-month moving average since 1982 when the great bull market began. If you didn’t know it already, that’s a pretty good signal that the great bull market is over. Tomorrow, Uncle Al is on the Hill again. So the kids will get another chance to sell him, and we also get the final tally on consumer sentiment for Feb from the University of Michigan. Margin debt declined again last month, which is bearish in the short term and indicates further liquidation of stock holdings. Once margin debt peaks and turns the other way, it tends to feed on itself much like on the way up when it expands and is bullish. The supposed cause for today’s rally was the "good action" in AMCC and the false rumor being circulated about IBM. I think there was also some talk among some chart huggers of a bottom that were lining up charts of the Nikkei in 1990-1991 and the NASDAQ of today and thinking things would develop exactly the same way (the Nikkei bottomed about here on the chart in 1991). Obviously, this is probably the dumbest idea I have heard to date on why we’ve bottomed, but I’m sure somebody will come up with something dumber before we’re done going down. We can only bottom for real once there is a panic, period. I’d continue to expect sharp rallies like this, but I think they’ll get more and more brief as we get closer and closer to acceleration and a final panic. After the close, we got warnings out of SBC and ORCL. So, we’ll likely see the entire "hope" rally we saw at the close reversed out on the open in the morning. With so many shorts likely being jerked out in today’s jamjob, we could really do some heavy damage tomorrow since many shorts won’t be there underneath to apply buying pressure. Well, here we still stand on the edge of the abyss again. A move to new lows tomorrow could set up an epic debacle next week, but we’ll have to see if the bulls have run out tricks first. Only they know if their pockets are empty yet. Helmets remain on until this move culminates in a panic…
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