The Day Ahead: A window on employment..Subscribe it.. A good letter fwiw..
The market had a very dynamic finish today, coming back in a
particularly dramatic fashion during the closing few minutes of trading
with S&P Futures finishing sharply higher, a highly positive
development indeed. Action like this can often be a precursor to an
very explosive upmove and has even preceded some record upmoves in the
recent past. So be prepared for anything to happen now. Tomorrow could
be a very violent day either up or even possibly down if the kind of
news the market is expecting is either better or worse than
anticipated.
Part of the reason for the sharp rally could have been the belief that
weekly unemployment claims may come in weaker than expected and
precipitate a sharp rally or reversal in US Treasury Bonds, that could
be significant enough to end this brutal decline. On the other hand the
news could indicate even stronger employment conditions that also in a
curious sort of way could still have a positive influence on the
market. Remember, the economy has been over-delivering on the
Stockmarkets expectations and a stronger economy means more demand for
products and greater profits and maybe less of a slowdown, if at all in
computer sales and the high technology in general. So all in all, a
very intricate day could
lie ahead that may set the tone and trend for the few next days and
weeks to come.
We have suggested more than a few times to be on the lookout for the
market to rally into this employment report towards the end of the
week. Reason: The market has had a strong tendency to rally into
important and market moving economic reports of late and perhaps it was
starting to do the same thing again as early as late this afternoon. In
spite of the sharp rise in interest rates, it should not be lost on
investors, the distinct probability that at some point, this will be
interpreted as extremely bullish and could send the market soaring into
the stratosphere, in what would most probably then become the mother of
all rallies, the classic blowoff or "Run for the Roses". We have not
really experienced this in the broad market yet, although the Internet
stocks have already given us an incredible foretaste of what could be.
There are certain technical reasons, why this scenario could still as
yet unfold. First, we have had only one notable correction in the
Nasdaq since the October lows and that's the one we that we are in
right now. It is extremely rare for a market to rally off a major low,
in such an enormously powerful fashion, with massive percentage gains
to correct back just a small amount and not move to sharply higher
highs beyond the highs we recently established at 2533.44 on the first
day of February. The biggest surprise, should this idea actually pan
out could be the degree to which the market might actually rally beyond
these highs in both the Nasdaq and the Dow at the 9600 resistance
level, that repelled the market so far. The first indications that such
a scenario could be unfolding, would be a dramatic break up through
what has become a major resistance level of 2400 on the Nasdaq.
But in the event that something like this were beginning to get under
way, it is fairly obvious that a break of this 2400 level and the old
highs in the Nasdaq, accompanied by some sort of decisive break through
the 9600 level in the Dow could quite easily create an absolute frenzy
of short covering of near panic proportions as the realization of a
powerful surge through the 10,000 level would begin to dawn on
investors and traders who had bet wrong.
With the knowledge of how dangerous that has been in Internet stocks
over the past few years, still fresh in many traders memories, this
could add some extra intense fuel to this fire because as we have
stated before, there is a looming "Internet effect" out there could
affect many or even most stocks all the way from GE at the top down to
the smallest microcap at the bottom of the entire spectrum.
It's my sense that something like this will happen sooner or later and
most probably sooner. Could it have started this afternoon? Possibly,
although in spite of today's sharp reversal, it still feels like we
have more of this long drawn out, rotational correction to go before
the real move sets in. It could happen tomorrow, within a few weeks or
a few months. Corrections are always difficult to deal with, but when
that great lever of psychology gets so forcefully thrown from bearish
to bullish, the effect on stocks can often be scintillating to say the
least.
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U.S. Stock Market Summary: Roller coaster for all
U.S. stocks ended the session mixed Wednesday after a roller coaster
that took the markets up and down. Pressure on the market seemed to
come from the anticipation of February jobs report due Friday.
The Dow Jones industrial average lost 21.73 points to close at
9,275.88. The Nasdaq Composite rallied in the closing minutes of
trading to finish 6.19 higher at 2,265.22 and the S&P 500 index rose
2.20 to 1,227.70.
Technology stocks performed in line with the general market. Over the
past two weeks, signs of slowing growth at 3Com, Compaq Computer, Dell
Computer, and Hewlett-Packard have some technology players heading for
the hills, as if these companies were declaring bankrupcy or something.
3Com (COMS) lost 2 3/8 to 24 5/8. It disclosed that third-quarter
operating net would be about 23 cents a share, far less than the 36
cents that Wall Street had expected. "An unexpected slowdown in the
U.S. and Latin American enterprise markets, a weakness in the
traditional two-tier distribution channel, and lower-than-expected PC
OEM sales" hurt results, it said in a statement.
BT Alex. Brown cut it outlook of 3Com stock to "market perform" from
"buy". And as usual when it rain it pours, Morgan Stanley Dean Witter
slimmed its opinion of the shares to "neutral" from "outperform." Also,
Credit Suisse First Boston lowered its rating to "buy" from "strong
buy," setting a $28 price objective on the stock.
The other various computer-related groups that make up the technology
sector have begun to get sloppy as well. Disk drive shares, which
topped in early January, followed by hardware issues and networking
names. Thursday's crack in the semiconductor group was a particular
disappointment since chip stocks had been a leader out of the Oct. 8
lows.
The Internet issues have experienced strong accumulation over the past
few weeks. As a group, 'Net stocks are up about 20 percent in the last
month.
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