Today's prudentbear! -->
Market Summary June 28, 2001
Posted Daily Between 5 and 6:30 PM EST
by Lance Lewis
MSFT Euphoria Signals Buying Climax?
Asia was lower last night by about a percent. Europe was up
about 2 percent, and the US futures were bid up ahead of the
open. We opened up and started slowly climbing higher. A
couple hours into the session, news broke that the appeals
court was about to rule on the MSFT case, and that caused a
virtual frenzy of buying. The news finally hit that the breakup
was being reversed and the case remanded back to the lower
court, and that caused a little more buying. MSFT had been
halted around $72 in the morning for the news and didn’t reopen
till about an hour before the close. It opened up at around $74,
and that was the top tick in the futures and MSFT. From there, it
was a nonstop slide into the close to send us out about where
we opened this morning in the futures. Volume picked up (1.3 bil
on the NYSE and 2 bil on the NASDAQ.) Breadth was slightly
positive on both exchanges. The top sector winner was the
semis as the SOX rose 4 percent. The top sector loser was the
oil services as the OSX lost 5 percent.
ALTR came out and reaffirmed its lower guidance last night, and
that was looked upon positively with ALTR rising 7 percent. As
for MSFT, the appeals court reversed the breakup remedy and
the findings on explorer but affirmed the findings regarding
violation of antitrust laws related to the Windows operating
system and remanded the case back to the lower court for a
remedy. Now, everybody has known for months that the
breakup was going to be reversed. So, when the news finally
hit, it was no big surprise that the stock actually sold off from its
open after the news. MSFT is trading at 40x earnings at a time
when PC sales are slowing dramatically and their new Windows
XP operating system is not likely to cause a huge boom in
demand either. So, there are plenty of reasons besides the
antitrust case to not like MSFT at these levels. Additionally, the
fact that the case is being remanded still leaves some
uncertainty as to how the legal issues will be resolved, although
it now seems unlikely that a breakup will occur even in the
worst-case scenario due to the DOJ’s case being weakened
considerably by this ruling. MSFT ended up 2 percent after
being up as much as 6 percent. The rest of tech was up, period.
There was no real pattern worth discussing besides almost
everything in technology being higher. Semis seemed to be
loved a little more I guess because ALTR said their nice things
last night. It is worth noting that the VXN (which measures
volatility on the NASDAQ) collapsed to a new low today,
indicating that complacency is high. The financials were also
higher. The BKX was up a percent, and the XBD rose 2 percent.
GE rose a percent.
Oil fell 5 cents. The XOI fell 3 percent, and the OSX collapsed 5
percent. The fall in the OSX can be called nothing less than a
crash as it has dropped almost 40% in about a month. That
signals to me that the market senses a further slowdown in
economic activity around the corner and thus lower demand for
oil and gas, which will lead to falling prices. In other words, we
have further confirmation that the second half rebound will not
occur for any who are in doubt. Gold fell $2.80 after trading even
lower early on. Lease rates were quiet again, and the HUI fell 2
percent. The US dollar index launched about 2 percent back
over 120 to return to its high. The euro fell more than a penny to
just above the 84-cent line. Treasuries were lower again in the
long end with the yield on the 10-yr rising to 5.32%. Short rates
also moved higher after the minutes from the Fed’s May meeting
showed the Fed is near dropping its easing bias. The yield on
3-month T-bills rose to 3.55%.
Today was as close to a buying climax as I think we’ve had in a
while. People seemed almost euphoric over the MSFT decision,
but in the end the cheers and excitement proved to be much
more abundant than actual buying. While much of today’s romp
can be attributed to the MSFT euphoria, we’ve also got
end-of-the-quarter funny business going on where some
managers try and goose their positions to make things look a
little prettier. So, today‘s strength is a little misleading I think.
The fact that we gave back almost all our early gains at the close
could mean that a reversal of that nonsense has already begun.
Stay tuned…
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