Yesterdays prudentbear -->
Market Summary July 02, 2001
Posted Daily Between 5 and 6:30 PM EST
by Lance Lewis
The Second Half Is Here
Asia was mixed last night with Japan falling another 2 percent
after the Tankan survey came in a little weaker last night.
Japan’s new Prime Minister, Koizumi, was in the US over the
weekend for a meeting with President Bush. They discussed
Japan’s new economic reforms that focus on cleaning up
Japan’s banking problems. The plan involves some short-term
economic pain for Japan, but there could finally be a light at the
end of the tunnel for what has appeared to be a never-ending
economic hole for the Japanese. We’ll want to keep a close eye
on how things progress in Japan from here for both investing
opportunities as well as consequences to US investments.
Friday’s key reversal in JGBs may be a confirming sign that
Japan is taking the right step to get its act together. Europe was
up a percent this morning, and the US futures were a little
stronger. We opened flat and then immediately began trading
higher. When the NAPM hit and showed a similar tick up as the
Chicago PMI did on Friday, we leaped higher yet again. We
peaked out around mid-morning and proceeded to flop around
till a selloff hit in the last hour sending the NASDAQ out near its
lows. The S&Ps, however, managed to climb back from their late
dip to near the highs of the day for the close. Volume was OK
(1.1 bil on the NYSE and 1.5 bil on the NASDAQ.) Breadth was
slightly positive on the NYSE and slightly negative on the
NASDAQ. The big sector winner was the semis as the SOX rose
2 percent. The big sector loser was the golds as the HUI lost 4
percent.
There was an article in the NY Times over the weekend
discussing MU’s possible violation of Reg FD as well as some
questionable accounting practices (click on MU for the article.)
I’ll let the article speak for itself. That didn’t seem to bother MU
today though, as it closed up 3 percent. The rest of the semis
were mixed. Most of today’s gyrations consisted of reversing
Friday’s late chaos either to the upside or downside, depending
on whichever direction prices were wildly yanked in Friday’s
SNAFU session. Interestingly, MSFT continued to be under
pressure today as it lost 3 percent. MSFT’s continued failure to
rally after its favorable court decision is a big red flag for bulls. It
is also worth noting that the NASDAQ volatility measure, the
VXN, fell another 7 percent to another new low for the move,
indicating extreme complacency. Financials were mixed. The
BKX rose a percent, and the XBD fell a percent. GE rose 2
percent. The retailers managed to bounce a percent. MMM
warned this morning, citing the deterioration of overseas
markets, but nobody seemed to care. After gapping down, MMM
managed to rally 3 percent by the close. Once again, as we
noted Friday, everybody has made their bet that the Fed’s rate
cuts will kick in and things will bounce back in the second half
so any earnings deterioration at the moment is ignored. It’s also
likely that many saw the NAPM’s bounce as confirmation of this.
The big question is: is this bet correct? I don’t think so for the
reasons we have discussed before.
Oil fell 30 cents ahead of this week's OPEC meeting where
output is expected to remain unchanged. The XOI fell a percent,
and the OSX fell 3 percent. Gold fell a $1.20, and lease rates
were quiet again. The HUI fell 4 percent. The US dollar index
bounced a touch to regain the 120-level. The euro gave back
Friday’s small gain to end just above 84 cents. Treasuries were
a little higher.
It’s the second half. It's time to put up the numbers to support
the recent rally. On the first day of the second half we got the
NAPM index jumping 3 points to 48.6 (a reading below 50
indicates contraction in manufacturing activity)? That’s not a
real good start, but I suppose second half believers will see this
as confirmation of a recovery in the works. I wouldn't be so
sure. The market didn’t exactly embrace the number with a wild
rally today either. The Q3 guidance that we get over the next
several weeks will be much more important I think in determining
what is going on in the real world. The VIX (which measures
volatility on the OEX) has closed at the 20-level on 3 different
occasions in the last 3 years. The first time was in July of 1998.
The 2nd time was in July of 1999, and the 3rd time was in Sept of
2000. Each of those times was a major top in the stock market.
Today the VIX ended at the 20.29-level to make it four times in 3
years. Draw your own conclusions. Tomorrow’s session in
front of the 4th of July holiday will be an abbreviated session, so
expect the market summary to be abbreviated as well. |
