Someone else's take on a catalyst. Written before Fed announcement.
Not much of a reaction on ISLAND to the Semi BTB so far.
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August 21, 2001
Traders were more than a little nervous after last Friday's market meltdown, seeing as Mondays that follow sloppy week-ending sessions rarely go well. Perhaps the FOMC's meeting tomorrow tempered the pessimism. Of course, there were pockets of outright weakness like the airline sector after Goldman cut estimates on ten of them. At the end of the day, however, the Dow Industrials were up 79.29 for a 10320.07 close, still within its recent consolidation range even if biased to the low side of the channel.
The tech-heavy Nasdaq also managed to finish to the upside (barely), adding 14.34 to close at 1881.35. The Naz has already broken through the low extreme of its trading channel but seems to have stabilized for the moment. Tech traders are holding their collective breath while focusing primarily on chips and networkers as the early lynchpins of a recovery in the techs. The Philadelphia Semiconductor Index ($SOX) put in a mildly upside performance, but the Networking Index ($NWX) moved lower after Lehman downgraded Ciena (CIEN). Overall, it was another weak day of mediocre volume, and big caps like Intel (INTC), Cisco (CSCO), Oracle (ORCL), and Microsoft (MSFT) hogged most of the day's volume, as well as providing the only real traction on the day.
The low volume was fairly predictable one day before the Fed's next policy meeting, as the street is clearly on Fedwatch again. While it's fairly unanimous that we'll get another 25 basis point rate cut, there's just enough speculation surrounding the FOMC's next move to make the rumor mongers happy. No one is really expecting that the Fed will do nothing at all, but some are looking at the signal that would be sent if Mr. Greenspan's cronies come up with a half point cut. Would that be a signal that they should have done a half point in June? Would a half point cut signal that the Fed is done? Would it signal that the Fed now sees much greater and ongoing weakness in the economy and is becoming increasingly concerned?
Fortunately, we see much of this ongoing blather as moot. We're looking for a quarter-point cut accompanied by guidance that suggests risks are biased toward additional economic weakness. In short, no surprises. The street already knows this and Tuesday's trading "should" remain quite orderly on a quarter-point cut. Look for some mild selling on the "further economic weakness" guidance, but certainly not the gloom-and-doom some pundits are throwing out there.
Following Tuesday's FOMC meeting, we'll get Initial Claims Thursday, followed by Durable Orders and New Home Sales Friday. The street will be looking for hints that layoffs are stabilizing from the Initial Claims number and will want to see an uptick in durable orders, as that might finally suggest that the woeful manufacturing sector is likewise beginning to stabilize. We're hearing an increasing number of analysts commenting that industry is successfully chewing through excess inventory, and ANY good news from the manufacturing sector will likely bring a torrent of analysts looking to jump on board the bandwagon. While that certainly wouldn't signal that we're out of the woods, it could be the beginning of a small traders' rally that would give the locals more to do than watch paint dry.
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