AN EYE ON THE MARKETS / Weekend Edition - Part 3
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U.S. Markets
moneycentral.msn.com
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Time For Catchup On Wall Street
Dow average retraced as much as 80% of its losses
Patrick Bloomfield - The Financial Post
Whenever there has been a really sizeable North American stock market recovery, two human responses immediately follow.
Some bright spark starts talking about "looking across the valley" to the next upturn. Next, doubts start creeping in.
As at yesterday's close, there was historical support for both doubters and believers. That sage of Wall Street, Alan Abelson, ran an interesting table of previous great recoveries in the latest issue of Barron's.
For instance, the Great Wall Street bounce from the initial decline of 1929, a sucker's rally if ever there was one, was a retracement of 52% of the initial plunge.
The 1973/74 bear market was distinguished by even more of a lulu that had the Dow Jones industrial average retracing 68% of its losses, before plunging again.
This time, the Dow has done even better, retracing as much as 80% of its losses, before the recent weakness set in.
But I would caution against throwing one's hat in the air too soon. As of yesterday, the Standard & Poor's 500-stock composite, the index the professionals watch, was hovering only about six or seven points above its two-thirds retracement level.
Markets continued to ponder the consequences of the military poker game being played by Iraqi President Saddam Hussein and the powers that be in Washington and London. After all, there are no rules set in concrete.
That said, Wall Street seems more likely, on current indications, to go into some kind of holding pattern in the shorter term, with the rank-and-file stocks, which were hit far harder than the indexes, playing gradual catchup.
After all, there are some good things happening on the North American business scene. One that has gone largely unreported in the business press is the nascent recovery of PC-related stocks, aided and abetted by reassuring words from chip maker Intel Corp. (INTC/NASDAQ).
Computer distribution in the third and fourth quarters of this year has been the mirror image of the first quarter.
Then, Compaq Computer Corp. (CPQ/NYSE) started the rot by deciding that the only way to clear excess inventory from its warehouses was to sell it, and sell it fast.
Which it did, triggering a price war.
It would be wrong to say that this price war has ended (it never does in that business). But competition is now focused on newer and faster machines.
Compaq, for its part, is targeting small business through direct sales and five-day delivery, taking on Dell Computer Corp. (DELL/ NASDAQ) head on.
Seems the consumer likes what is happening -- and stocks of hardware makers in general have been responding.
Keep in mind that it was a weak technology sector that hastened Wall Street's summer decline, and technology remains one area where growth of seasoned stocks seems reasonably predictable.
The unseasoned are another matter. Some might say investors who bought the stock of a U.S. initial public offering called Earthweb Inc. (EWBX/NASDAQ) this week at double the opening price of $24 5/8 (US) might have been looking a little far into the future. This newcomer has reason to pride itself on being the leading provider of Internet-based service to information technology professionals. But the hard numbers suggest it had but six shareholders before the issue, first-half 1998 sales of less than $1-million (US) and shareholders' equity of some $7.2-million (US).
If they are putting the best face on technology in New York, investors in Canada seem to be working hard to put on the worst. In my morning read yesterday I checked out some Canadian software companies' price earnings multiples. There was Geac Computer Corp. (GAC/TSE) -- in which I happen to have an indirect holding -- and Hummingbird Communications Ltd. (HUM/TSE) trading at multiples of around 11. I also noted Cognos Inc. (CSN/TSE) at a multiple of 19. I checked recent results and was reassured to find that all three still seemed to be turning out half-decent quarterly numbers, with Hummingbird the possible laggard.
Looks like one damned good excuse to ignore the shenanigans down south and look around our own backyard.
Strong Dow Masks Stock Consolidation
NEW YORK, Nov 13 - Wall Street will suffer more short-term consolidation, as overbought technical conditions inhibit gains and investors await the outcome of Tuesday's Federal Reserve meeting and the U.S. standoff with Iraq, market technicians said on Friday.
Though the Dow rose on Friday, its rise was cautious and the overall market was mixed. Analysts said the blue chip index lacks sufficient momentum to crack resistance at the 8991 November 6 high, but pullbacks should be contained at 8700.
"The market is just marking time here. I think it's mostly due to the technical factors being overbought and the excuse out there is that some people are nervous about what can happen over the weekend in Iraq," said Anthony O'Bryan, market analyst at A.G. Edwards and Sons.
The sideways action on the daily charts since the Dow flirted with 9000 a week ago resembles the late October pennant structure which preceded the last leg up, analysts said.
The 8700 area was the platform for the last advance and is still support, protecting against a deeper pullback to the area of congested price activity around 8500, from late October.
The Dow on Friday seemed to be pricing in an interest rate cut resulting from the Federal Open Market Committee meeting next week. But its 77 point gain to 8906 at midafternoon masked a larger ambivalence, with Big Board losers slightly beating gainers and put-call ratios suggesting bulls may need to be patient.
"The market pickup in call buying and also the bullish sentiment surveys have seen a market pickup in bullishness, particularly Investors Intelligence numbers," said Peter Green, technical analyst at Gruntal and Co.
Investors Intelligence this week reported its latest survey showed 53.1 percent of respondents describing themselves as bullish, up from 47.8 percent a week ago. Bears dropped to 35.4 percent from 38.3 percent.
"Even though the market is strong, I think a continued deserved rest would be welcomed ... Typically, at the extremes call buyers or put buyers tend to be wrong," he said.
Indicating an underlying market tiredness, important sectors like pharmaceuticals were struggling, Green noted. Drug giants Merck & Co. Inc. <MRK.N> and Johnson and Johnson <JNJ.N> were flat at 145-3/8 and 84-5/16 respectively in afternoon trade. Pfizer Inc <PFE.N> was up 1-3/16.
Meanwhile, oil stocks, market leaders on Thursday, pulled back even as more U.S. warships steamed toward a possible military conflict against Iraq.
"If we do act this weekend, I think our market would actually rally on the news on Monday, particularly the defense stocks," said O'Bryan. "You would probably get some profit- taking in gold and oil stocks."
Chevron Corp. <CHV.N> was down 15/16 at 82-01/16 in the early afternoon. Exxon Corp <XON.N>, another big gainer on Thursday, was off 1-1/16 at 71-3/4.
The Nasdaq also looked overheated after its relentless advance since October topped at 1892 on Wedesday.
Breadth on the Nasdaq was slightly negative, with the index down but straddling the breakeven level in early afternoon trade. Analysts that said its strength this week was limited to high techs which are now succumbing to profit taking.
In one big negative for the Nasdaq, shares in Dell Computer Corp. <DELL.O> tumbled 4-5/16 to 64-7/8 by midafternoon, following disappointing earnings results.
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North American Market Pulse - 11 Good Links
financialweb.com
cadvision.com
fool.com
canbus.com
msnbc.com
robmagazine.com
investor.msn.com
insidewallstreet.com:80/index.html
site-by-site.com
pathfinder.com
iionline.com
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Europen Markets
cnnfn.com
Asian Markets
cnnfn.com
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