The Meehan Notes
A Gloomy Forecast for a Sweltering Summer Session
By Bill Meehan
Special to TheStreet.com
8/10/01 9:21 AM ET
URL: thestreet.com
Was there ever an easier short? Stem-cell stocks rallied, leaving hopeful traders exposed to the group, and shorting the group seemed to be as close to a lay-up as one gets in this perverse and wicked market. Wishful thinkers viewed Thursday's late-day rally as something to cheer, but the fact that the market didn't take out the July lows appeared to be little more than a consolation prize. The technical backdrop remains about as bleak as it gets.
All of the major market measures are trading below their 40-week simple moving averages. Visibility is nil, and earnings expectations seem to be little more than puff, fluff and unfounded optimism that, this time, the Fed's actions will once again lead to Easy Street. A larger-than-expected increase in initial jobless claims and falling import prices pointed out the fact that the American consumer is unlikely to save the day. However, the fact that the July lows held for the most part in another languid session kept traders willing to speculate that better times are just around the corner. That's not good for investors, as we need to see much more negative sentiment to mark a decent buying opportunity.
It seems to me, after taking an informal poll of traders and accounts that have a horizon measured in a bit more than hours, we've begun to see a bit more interest among investor types, but there's little in the way of conviction. And I fully expect that we'll see an uptick in volume once the "big money" folks decide that the near-term outlook isn't as bright as sell-side analysts believe.
As we head into the weekend, it appears as if the late-day bounce will keep the bulls in good stead. European markets are in the green, and the futures are firm in Friday's Globex session. A bit higher than expected core rate in the producer price index lessens the likelihood that the Fed will cut rates by more than the anticipated 25 basis points. However, the problem is primarily one of excess capacity, especially in the tech sector, and continued deterioration in the global economy.
While traders should continue to view rally attempts in techland as opportunities to sell, the technical picture in the financial stocks indicates that the pain is spreading. Names such as Goldman Sachs (GS:NYSE), Merrill Lynch (MER:NYSE), Morgan Stanley (MWD:NYSE), Bank of America (BAC:NYSE) and J.P. Morgan Chase (JPM:NYSE) appear ripe for further downside. Philip Morris (MO:NYSE) is trading higher on a more favorable ruling and still looks like a good opportunity for investors.
That said, the near-term outlook isn't very good, as there's no catalyst to attract real money into the market. Traders should continue to sell into rally attempts, and defensively positioned investors should sit chilly. The markets' prospects remain gloomy, and it looks like the dog days of summer will make it very uncomfortable even for mad dogs and Englishmen. Stay cool and be patient. There's a good opportunity in the not-too-distant future, but things will probably get worse before they get better. Have a pleasant weekend. Warnings season is just around the corner. |
