Ask Yourself: Do I Feel Lucky Today?
By Bill Meehan
Special to TheStreet.com
7/13/01 9:31 AM ET
URL: thestreet.com
From the bulls' perspective, Thursday's powerful move was a watershed event. Although I outlined why I thought the "good news" from Microsoft (MSFT:Nasdaq), Motorola (MOT:NYSE) and Yahoo! (YHOO:Nasdaq) was much less than met the eye, one must always respect what the market says in cold, hard numbers. To conclude that a nascent move to the upside means that Wednesday's lows are inviolable seems to be a very premature judgment.
What's New
The only news gleaned from the past few days is that retail sales are punk, the semiconductor business is not improving and more folks are on the unemployment rolls. It remains to be seen whether Microsoft's better-than-expected revenue is the real deal or if it's a function of a decline in deferred revenue, as was the case last quarter. The jump in weekly initial jobless claims, more than 50,000 above expectations, was easily brushed off by the raging bulls. Argentina's apparent meltdown isn't new, but it's getting more ugly. At least it helped the bond market gain ground along with the stock market. From a technical perspective, the S&P 500, the Nasdaq Composite and the Nasdaq 100 did not break through their recent downtrend lines, although the latter two tech-heavy indices did rally through their 20-day simple moving averages.
After the close, we learned that Advanced Micro Devices (AMD:NYSE) won't come close to the third-quarter consensus, as the company wages a costly jihad against Intel (INTC:Nasdaq) and will cut capital-expenditure spending by 10% from previous guidance. The company is committed to gaining market share, and Mercury Research reported that AMD now has 22% of the microprocessor market, up from 16%. Rambus (RMBS:Nasdaq) also has its own problems, and Kimberly-Clark's (KMB:NYSE) warning indicates that expectations, especially for 2002, are probably more optimistic than warranted.
The Outlook -- for Now
The Investor's Intelligence weekly poll shows only 25% bearishness. Add to that relatively low Volatility Index and QQV readings and the Chicago Board Options Exchange put/call ratio's decline to 0.51. (The put/call reading on the QQQs (QQQ:Amex) was a paltry 0.24.) All this makes it difficult to believe that the market is on the cusp of a major upside move. What might indicate that it will in the near term? A break of the short-term downtrend lines would certainly take my momentum indicators into buy territory. Friday, those levels are around 1220 for the S&P 500, 2150 for the Nasdaq Composite and 1810 for the Nasdaq 100.
While I continue to expect that the market, particularly the Nasdaq, will break through its trading range in the fourth quarter, the near-term outlook for earnings and guidance leads me to believe that it's going to be a rocky road. The future promises an economic rebound, thanks to the Fed's very aggressive actions, tax relief and increased government spending, which is apt to cause the bond market a bit of indigestion should things improve in Latin America. However, with profit margins likely to remain under pressure in the foreseeable future, valuations are still too rich, especially in the wounded tech sector. Let's see how Friday morning's economic data and consumer sentiment shape up, and investors should continue to do little, if anything, if they're comfortably positioned with a bent toward value and away from technology and financials. Happy Friday the 13th! Do you feel lucky? |
