Friday's prudentbear! -->
Market Summary June 15, 2001
Posted Daily Between 5 and 6:30 PM EST
by Lance Lewis
Q2 Expiration Ends With A Whimper
Asia was a little lower again last night. Keep an eye on Japan early next week as that market continues to deteriorate. Europe was off another percent this morning, and the US futures were a little weaker after warnings from JDSU last night and NT this morning. We gapped down at the open, tried to bounce a bit and then tanked to the low of the day. We recovered from that low fairly quickly and sprinted into the green by a hair. From there, we spent the remainder of the day dancing around the unchanged area, which is right about where we went out. Volume picked up with today being an expiration (1.6 bil on the NYSE and 2.1 bil on the NASDAQ.) Breadth was slightly negative on both exchanges. Big winners were in the biotechs as the BTK rose 3 percent. Big losers were in the networkers as the NWX lost 5 percent.
IRF, which makes power management chips that go into just about everything, warned last night that revenue for the current quarter would be down about 30 to 35 percent from previous guidance. That seemed to make some people give up on the second half fantasy in those shares because IRF was dumped for 33 percent. Last night, JDSU guided revenue down another 15 percent for the current quarter and also guided next quarter lower. There was no hope of a second half rebound offered. JDSU fell 10 percent to a new 52-week low. NT was the big hairball this morning. NT said they were going to record a whopping $12.3 bil charge to intangible assets and admitted that Q2 wasn’t going so well to the tune of a $19.2 bil loss on revenue of about $4.5 bil (this is compared to the $1.5 bil loss that everyone had already been braced for.) NT also said they were chopping off another 10 percent of their workforce, so obviously they smell a turnaround right around the corner, right? NT fell 7 percent to a new 52-week low. All of that bad news plus a triple-witch option expiration gave us a chaos cocktail for the day in technology. It basically broke down like this: anything related to the optical area was hammered. Everything else was hit or miss depending on where the expiration pulled it. Financials finally got a bounce. The BKX rose half a percent, and the XBD a little less than that. GE was flat, and credit card shares were a little lower once again.
Oil fell 53 cents. The XOI rose a percent, and the OSX was flat. Gold fell $4.10, and lease rates slipped a touch once again. The HUI fell 3 percent. Commercial traders cut their net short position slightly in gold again this week, which is encouraging to those of the bullish inclination. The US dollar index bounced a touch off the 118 level. The euro traded higher initially and then ended down a hair but still above the 86-cent level. The COT report showed commercials to be basically flat the euro (something I don’t ever recall seeing after a fairly consistently large net short position was to be found since the euro began trading), which is bullish for the currency formerly known as the zero. The yen fell a full penny to 82 cents. Treasuries traded higher early on but reversed to end down slightly. That’s a rather lukewarm reaction to a benign CPI and weak equity market.
The intermeeting rate cut rumor was already floating around this morning. It tells you how far “out of bounds” we’ve gone (if I refer to yesterday’s skiing analogy) to have a 2 percent decline in the Dow like yesterday and people think it must be responded to by slashing interest rates the next day. And even worse, I don’t think anybody would be very surprised if Uncle Al had cut this morning. Is it any wonder gold is rallying? More confetti being thrown at the bubble is not the answer, but I digress… For the week, all the major indexes ended back below their 200-day moving averages, and the SPX and OEX both ended back below their 200-week moving average for the first time since they last dove below them back in March only to bottom one week later. (That first weekly close for both indexes below that moving average back in March was also an option expiration Friday not so coincidentally.) The NASDAQ has remained below its 200-week moving average since February, so I am going to ignore it. And the Dow still has a way to go to pierce its 200-week moving average down at 9800 or so, but it did end below its 50-week moving average, which, like the S&Ps, it last slid below back in that same option expiration week in March before it plunged to 9000 and its March bottom in the following week. Next week should be interesting as always. The market is often vulnerable to downside acceleration after an option expiration since so many see their downside protection go poof the Friday before and need to either buy more puts, which must be hedged by more selling, or simply sell stock. This is obviously a dangerous time for the market, and we can likely expect another slew of preannouncements next week that will drive more and more people to give up on their second half recovery dream. The question will be then, can hope in the Fed’s rate cut that will be coming in the following week be enough to prop us up for another quarter? Maybe it can, or maybe it can’t. It’s all psychology at this point, so who knows where the chips will fall, but I’d keep a helmet handy just in case…
The COT report showed commercial traders cut their net short position in the spoos as of Tuesday (that’s the S&Ps to those that are waiting for the glossary) by about 10 percent to 70,000 contracts. |
