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Market Summary May 25, 2001
Posted Daily Between 5 and 6:30 PM EST
by Lance Lewis
More Sellers Than Buyers
Japan and Hong Kong slipped about a percent last night. Europe was down a percent this morning, and our futures were flat. We opened down a bit, tried to rally, and then dove about percent. The rest of the day was spent flopping along on that low till the last hour where we broke to new lows for the day. The last hour dip buyers showed up as usual in the last 30 minutes or so, but the rally didn’t last long as sellers overwhelmed the dippers and sent us out near the lows. Volume was light ahead of the holiday weekend (.8 bil on the NYSE and 1.4 bil on the NASDAQ.) Breadth was slightly negative on both exchanges. Big winners were in the golds as the HUI rose 5 percent. Big losers were in the networking stocks as the NWX fell 4 percent.
We had a big tout out of one house on the semi equipment shares this morning that had everybody all lathered up before the open. The call was based on this period being like 1998 and that you had to buy them now for the big upturn that was coming. That’s rather interesting since these shares are at nothing like 1998’s valuations, and their businesses are even worse off than they were then (not too mention the fact that this period is nothing like 1998.) Take AMAT for example. AMAT bottomed out at less than 2x sales in the fall of 1998 after what was then record low .57 book-to-bill ratio. Currently, we find AMAT trading at more than 4x sales and near a 6 month high after a new record low book-to-bill in April of .42 released just a few days ago. In any event, all the equipment shares gapped up on the tout and tried to launch, but surprise surprise they didn’t get very far. In fact, after the initial pop, most of the equips moved not only below their opening prices but negative on the day by a percent or so. Remember “action” is what is key right now to determine if people are giving up on their 2nd half recovery hope, and the action we saw today is bearish, especially after yesterday’s cap ex reiteration by INTC (not that it matters since INTC has already spent 36% of that budget in Q1 anyway, and I continue to suspect they won’t spend the full amount once they get a look at how bad the 2nd half is going to be.) The rest of semi-land was a little weaker as well with the SOX ending down a percent. MSFT got a tout based on the suspected settlement with the Justice Department, but strangely enough (with the stock T’d up for a chart hugger breakout) the stock couldn’t rally and ended down a percent. Maybe they can get it going next week, but the continual failure of MSFT to “breakout” makes one wonder if its destiny lies in a more southerly direction from here. The rest of tech was a little weaker, but there were no moves of size, and as I mentioned earlier, volume was pretty thin. Financials were weaker on the day. The BKX and XBD both fell a percent. GE fell 3 percent. Retailers were a little weaker as the RLX fell 2 percent off this morning’s weaker economic data. The Q1 GDP revision down to 1.3% from the earlier 2% seemed to bother some folks, although it was certainly no big surprise. Durable goods orders were down more than expected, reversing a two-month bounce. Existing home sales fell 4 percent in April, leading some to believe that housing activity topped out in March (which was not so coincidentally also the bottom for mortgage rates.) If there’s any doubt on whether the housing market may be getting weaker, I’d suggest taking a look at a chart of homebuilder TOL. If investors are correctly discounting events, it looks like new home building is headed for a “sharp downturn,” for lack of a better phrase.
Oil fell 3 cents. The oil shares were quiet other than a small bid on takeover fever in the service shares. Gold ended down $1.20 after trading even lower early on. Lease rates moved up a touch again. In a divergence from the metal’s direction, the HUI rose 5 percent, which is bullish. The COT report showed commercials adding significantly to their net short position in gold, although it’s likely that much of that was liquidated on yesterday’s swoon. In any event, the commercials are often early in their moves (sometimes very early), so it’s not a foolproof indicator. But there’s reason to be cautious here if you’re long I think. The US dollar index slipped a hair, and the zero finally had a small plus day but remained below the 86-cent level. The yen was quiet again after Wed’s sudden pop. There continue to be rumors about Japan bringing foreign assets home to help solve her banking problems. This may or may not have had something to with this week’s move in the yen, but official sources within new Prime Minister Koizumi’s government have more than once hinted at this possibility. Treasuries were quiet on the day, barely bouncing from yesterday’s losses as both the 30yr and 10yr sit just off their recent lows for the move from their March peaks. Uncle Al’s speech last night was tossed around today. Here’s the sentence that everybody seemed to latch onto: “This period of sub-par economic growth is not yet over, and we are not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response.” Sounds like more cuts are on the way to me, which is what the Fed has made pretty clear that they’re going to do I think. Al said he’s not worried about inflation one bit and continues to feel that energy prices are “probably peaking,” just like he did several months ago when oil and gas dipped a bit before moving higher again. Some people seemed to think they could divine that fewer interest rate cuts were coming going forward, although I don’t know how they came up with that from this text other than the fact that you’d expect him to stop easing with the way the bond, gold, and energy markets are acting.
Days like today in front of holiday weekends on such light volume are normally throwaway days, and this one may have been too. On days ahead of holiday weekends like this, it’s often just a matter of who shows up. In this case, there were more sellers than buyers. We won’t know till next week when we get some more volume whether this selloff means anything or not. The “action” (and I am referring to the price action in response to news) got a little more bearish late this week although stocks have yet to really breakdown on the charts, so a continuation of the rally is certainly doable early next week. If we do continue to sell off from here, it could get rather violent. So, I’d keep a close eye on things. The psychology of hope in the 2nd half is all that’s holding us up here, but the fundamentals aren’t pointing to that happening at the moment. And I find it rather unlikely that they will going forward either. That’s why I am still bearish, in case there was any doubt out there...
market summary archive
p Close Change % Change Close 12/29/00 YTD Change
Dow 11005.37 -117.05 -1.1% 10786.85 2.0%
S&P 500 1277.89 -15.28 -1.2% 1320.28 -3.2%
NASD 2251.03 -30.99 -1.4% 2470.52 -8.9%
NASD 100 1960.74 -42.63 -2.1% 2341.70 -16.3%
Morgan Stanley Hi Tech 619.1 -7.21 -1.2% 668.22 -7.4%
TheStreet.com Internet 291.51 -6.24 -2.1% 300.63 -3.0%
Biotech Index 619.54 -5.96 -1.0% 634.32 -2.3%
S&P Banking Index 915.55 -10.53 -1.1% 901.42 1.6%
Morgan Stanley Cyclical 562.88 -2.79 -0.5% 511.18 10.1%
Morgan Stanley Consumer 564.76 -4.28 -0.8% 613.91 -8.0%
Russell 2000 508.62 -1.78 -0.3% 483.53 5.2%
Wilshire 5000 TOT 11849.89 -120.49 -1.0% 12175.88 -2.7%
Gold Bug Index 60.99 1.66 2.8% 51.41 18.6%
Dow Utilities 390.07 -7.61 -1.9% 412.16 -5.4%
Bloomberg IPO 898.71 -8.93 -1.0% 932.37 -3.6%
Dollar 117.98 -0.38 109.32 7.9%
Euro 0.86125 0.00 0.94 -8.6%
Gold $277.65 -$1.60 $272.25 $5.40
Oil $28.46 -$0.03 $26.70 $1.76
10 Year Bond Yield 5.72 -6 5.112 60
30 Year Bond Yield 5.81 -1 5.457 35
Spreads: Last Peak 12/29/2000 YTD Change
Dollar Swap 78 102 102 -24
US Treasury vs:
10 Year Fannie 62 90 90 -28
10 Year Freddie 59 90 90 -31
10 Year FHLB 64 85 85 -21
Cur. Coup. Mtg. 140 179 179 -39
10 Yr AA Corp 95 127 127 -32
TED Spread 50 79 66 -16 |
