Today's prudentbear! -->
Market Summary June 22, 2001
Posted Daily Between 5 and 6:30 PM EST
by Lance Lewis
Threatcon Delta
Asia was a little higher again last night. Europe was up a hair, and the US futures were a little lower. We opened flat and tried to bounce a bit. When that never got going, we started slowly sliding lower. We hit our low around noon and began a bounce that terminated abruptly in the last hour as we took a swoon to the tune of a percent in the span of about 5 minutes. The catalyst apparently was the news that US military forces in the Middle East were going to Threatcon Delta, which is the highest level of terrorist alert. Why anybody decided to care about that I have no idea. Nothing else seems to matter, so why should that? In any event, we quickly recovered from that little spill and managed to climb back to regain about half the "threatcon" loss. Volume was OK but down from the heavier levels of the last couple days (1.2 bil on the NYSE and 1.7 bil on the NASDAQ.) Breadth was slightly negative on both exchanges. The top sector winner was the networkers as the NWX rose 2 percent. The top sector loser was software as the GSO lost 4 percent.
The big news last night was the disaster out of MU. MU reported a 50 cent, or $301M, loss (giving back all of what they made in the same quarter last year) and more than wiping out the money MU made earlier this year to put it 8 cents in the hole for the year. The majority of the loss was due to an inventory write-down of around $260M. Revenue was down about 25 percent sequentially as ASPs fell 35 percent sequentially to $3.60. With 128-parts currently going for around 2 bucks (below the $3 or so that MU wrote their inventory down to) and still falling, we can expect something even uglier next quarter. It’s also worth noting that Inventory ballooned another 50 percent sequentially, but all of that is just data and doesn’t seem to matter to most people. What does matter to people apparently is MU’s ability to use their imaginations and offer up what everybody is clinging to at the moment: hope (just as they did last quarter when they said they saw a rebound in PC demand that never made an appearance in the world of reality where the rest of us live.) This time, it was the hope that Windows XP would cause a huge PC sales boom this Fall, sop up all the excess inventory lying around, and boost prices. That fantasy is not going to happen (even the usually optimistic PC companies don’t see a big boom this fall), but people seem to want to believe that right now I guess. Amazingly enough (or not so surprisingly if you’ve followed MU for any length of time), the stock actually rose 2 percent today on the back of that debacle. The North American Semi equipment book-to-bill ratio for May was also out last night and came in at .46, up an eyelash from April’s .44 ratio and still well below the previous record of .57 in 1998. Both bookings and shipments continued to slide. The president of SEMI, which collects the data, said, “While the book-to-bill ratio is slightly elevated from the prior month, both shipments and orders continued to decline. It is likely that the prospects for sustained year-over-year improvements in monthly shipments are three to four quarters away.” On the back of all that, the semis seemed to be the one safe haven today as the SOX started out of the gate strong led by MU and the equipment shares. By the close, however, the SOX’s gain had been cut back to only a hair by the “threatcon” slide. Internet security software maker SYMC warned and was slapped for 37 percent. The Internet shares in general slid a bit to give back all of yesterday’s gains. So, I guess the guys gambling on a bounce in the chart yesterday guessed wrong. Otherwise it was just the usual chaos, which I might add was more random than usual this week for some unknown reason. I suppose it could have had something to do with rumors of several large mutual funds fiddling with their portfolios, selling the large chunk of losers they had and placing some large bets on some new horses for the next quarter. Financials came in a touch after yesterday’s launch. The BKX slid a percent, and the XBD half a percent. GE was up a percent.
Oil rose 27 cents. The XOI rose a percent, and the OSX fell a touch. Gold fell 30 cents, and lease rates slipped a touch once again. The HUI rose a percent. The COT report for gold was basically unchanged from the previous week with commercials remaining net short. The US dollar index traded on both sides of unchanged to end up a touch at the 119-level. The euro rose a hair. The COT report also revealed that commercials had swung back to the slightly net short side after moving to flat last week. So, that’s not too encouraging for euro-bulls. Treasuries were a little higher once again with the yield on the 10yr falling to 5.124%.
Next week we finally get the FOMC out of the way and receive our 50 bp shot in the arm. I suspect it will be sold with authority once we get it, but between now and then we could certainly get another bounce. Today’s sudden and violent “threatcon” slide is just a small taste of what is likely going to happen when hope turns to fear, and this market goes on Threatcon Delta itself, which is coming at some point between now and this Fall when reality finally can't be ignored any longer.
The COT report showed the commercial net short position in the S&Ps this week to be basically unchanged for those that care. |
