MARKET SNAPSHOT
Upside open for shares?
By Julie Rannazzisi, CBS MarketWatch
Last Update: 8:05 AM ET May 23, 2000 Market Pulse
Bond Report
NEW YORK (CBS.MW) -- The U.S. equity market appears poised to open on a slightly positive note Tuesday. The market made an amazing comeback late in the session Monday, with the major averages managing to erase the lion's share of their earlier losses as buyers stepped up.
But observers believe the market lacks conviction, both on the upside and the downside, and point to the low volume behind recent moves.
June S&P 500 futures rose 5.80 points and were trading roughly 3.10 points above fair value. Nasdaq futures, meanwhile, added 35.00 points.
In the bond market, prices were little changed in listless early dealings. Again, there are no economic releases on tap for Tuesday and market participants must wait for Thursday to get their first dose of data. See
economic calendar and forecasts and historical economic data.
The 10-year Treasury note edged up 1/32 to yield 6.44 percent and the 30-year bond was flat to yield 6.20 percent.
In currency markets, dollar/yen lost 0.2 percent to 106.78 while euro/dollar climbed 0.7 percent to 0.9097.
Monday's trading activity
The major averages ended mildly lower Monday, staging a vigorous rebound from session lows courtesy of a late-day turnaround in shares of big-cap tech stocks.
Buying interest emerged during the final hour of trading in shares of Cisco Systems, Intel and Sun Microsystems, pushing the Nasdaq 100 into positive territory following a bruising, 231-point selloff earlier in the day.
Still, the late-day buying interest left many observers with more questions than answers.
"I'm not convinced. The Fed is still out there and I don't think there's anyone rushing to buy. If the market got a sense that the Fed's next move will be the last, that would be different," said Jay Suskind, director of trading at Ryan, Beck & Co.
"Buying on the dip isn't a huge force out there because the uncertainty is so huge. People don't [feel comfortable] adding on to positions," Suskind said.
Inside the tech arena, the Internet sector ended a touch higher while computer software and hardware issues lost the most ground. The broader market saw the largest losses in the biotech, oil service and brokerage sectors. Gold and utility stocks, which are viewed as a safe-havens, were again bid up amid the general market uncertainty. Also higher were bank and chemical stocks.
The Dow Industrials fell 84.30 points, or 0.8 percent, to 10,542.55 after falling as much as 257 points earlier in the day. (See 6-month chart of Dow and Nasdaq.)
Shares of General Motors, General Electric, Hewlett-Packard and International Paper were down. Upside movers included McDonald's, J.P. Morgan, IBM and Exxon Mobil.
The Nasdaq Composite declined for the fourth straight session, dropping 26.19 points, or 0.8 percent, to 3,364.21, after falling as much as 218 points in intra-day dealings. The Nasdaq 100 index added 4.07 points, or 0.1 percent, to 3,264.71.
Earlier in the session, a breakdown in big-name tech stocks pushed the Nasdaq below key support levels, which unlocked a wave of selling.
"People had a rude awakening to valuations and unfortunately more work may be needed on the downside to get valuations at [more reasonable] levels," said Art Hogan, chief market strategist at Jefferies & Co.
But the continued low volume makes it impossible to convincingly say that a bottom has been formed with Monday's broad-based sell-off, Hogan said. For that to occur, he believes we need to see capitulation -- which must take place on heavy volume.
"Right now we have a game with only one team showing up, which produces these big drops," Hogan added.
The market, Suskind said, continues to ponder two questions: Are we in an inflationary period and, if we're not, will the Fed overshoot on the tightening front and force the U.S. economy into recession?
The saving grace for the market, Suskind said, is that there's a lot of cash on the sidelines and that there's an overwhelming bearish sentiment in the market -- which is bullish from a contrarian point of view.
The Standard & Poor's 500 Index lost 0.4 percent while the Russell 2000 Index of small-capitalization stocks fell 1.7 percent.
Meanwhile, Banc of America Securities said Monday that it's reducing its recommended equity weighting to 70 percent from 75 percent and increasing its bond allocation to 30 percent.
Further, Banc of America is trimming its earnings-per-share estimates for S&P 500 companies by $1 each for 2000 and 2001. Banc of America estimates earnings-per-share of $57 for 2000 and $61 for 2001.
Volume came in at 870 million on the NYSE and at 1.63 billion on the Nasdaq Stock Market. Breadth was extremely negative, with decliners outpacing advancers by 18 to 12 on the NYSE and by 28 to 12 on the Nasdaq.
Poor technical patterns
Technicians don't like what they see in the Nasdaq's price patterns. The Nasdaq breached its low of the year of 3,227 reached on April 17, plunging to 3,172 in intra-day dealings Monday.
"[With the] April 17 low violated, the next significant area of support for the Nasdaq can be found at 2,900," said Todd Gold, technical strategist at Gruntal & Co. "The path of least resistance remains on the downside in the near to intermediate-term."
Gold is also closely watching the price action of the market leaders.
Shares of tech bellwether Cisco Systems, for example, fell to $50 in intra-day dealings Monday -- which Gold views as a crucial support level. That level, he added, corresponds to the 200-day moving average as well as a 62 percent retracement of the stock's gains from the October 1998 lows to the March 2000 highs. Cisco managed to end in the plus column -- up 1 13/16 to 55 1/4 -- thanks to buying in the final hour of trading.
Should the $50 level be penetrated by Cisco, Gold added, the next support level would be at $45. If Cisco can hold $45 and rebound significantly from that area in the coming months, he believes the networking giant will be the leader in the Nasdaq's next move higher.
Separately, Trim Tabs said inflows slowed as equity funds took in about $1.7 billion in the three days ending May 18, for a monthly rate of $13.2 billion. Technology funds lost $34 million though small-cap funds had a small inflow.
Specific movers
OnDisplay (ONDS: news, msgs) added 7/8 to 54 1/8. Vignette announced Monday that it'll buy OnDisplay for $69.22 a share in a deal valued at $1.7 billion. The purchase will allow Vignette to add XML -- or extensible markup language -- capabilities to its e-business platforms. Vignette (VIGN: news, msgs) fell 8 15/16, or 20 percent, to 34 7/8. Read the story.
Merrill Lynch's Internet Infrastructure Holdrs (IIH: news, msgs), of which Vignette is a component, fell a heady 3.2 percent and is down 46.6 percent since it began trading in late February.
Business-to-business companies also lost ground with Merrill's B2B Holdrs (BHH: news, msgs) off 2.1 percent. Downside leaders included Ventro Corp (VNTR: news, msgs), down 1 3/4 to 19 5/16, and CheckFree Holdings, down 3 3/4 to 42 1/8.
Active Software (ASWX: news, msgs) lost 15/16 to 32 1/16. WebMethods is buying ActiveSoftware for about $45.85 per share in a stock deal valued at $1.3 billion in a bid to increase its reach in the business-to-business software category. WebMethods (WEBM: news, msgs) lost 15 to 72. See full story.
Shares of brokerage stocks fell Monday, with the AMEX Securities Broker/Dealer index ($XBD: news, msgs) off 2.4 percent. E-Trade (EGRP: news, msgs) was especially hard hit, losing 2 7/8, or 15 percent, to 16 1/2. Ameritrade (AMTD: news, msgs) fell 1 3/16, or 8.6 percent, to 12 9/16. Both companies reached new 52-week lows. See related story.
In other news, IBM (IBM: news, msgs) announced Monday new Web servers powered by the world's first production microchips made of silicon-on-insulator transistors and copper wiring. The silicon insulation can increase performance up to 30 percent. See full story. The Dow component shed 2 9/16 to 109.
General Motors (GM: news, msgs) remained the Dow's downside leader, falling 9 9/16, or 11 percent, to 77 3/8. The automaker is issuing more shares of Hughes Electronics (GMH: news, msgs), its satellite subsidiary, to GM stockholders. See full story. Analyst Saul Rubin at UBS Warburg noted that more than half of GM's stock was tendered in exchange for the tracking stock of its Hughes subsidiary, which was "substantially" more than expected. See Market Pulse.
See After Hours for post-market trading activity.
Treasury focus
Government issues gained significant ground Monday, underpinned by the weakness in U.S. equity markets.
The 10-year Treasury note gained 14/32 to yield 6.45 percent and the 30-year bond inched up 3/32 to yield 6.20 percent. See Bond Report.
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Long-dated issues have been under the gun in recent weeks due to the market's heightened inflation worries, while the short-term end has been held hostage by the Fed's tightening actions.
The week will be an excruciatingly light one on the economic data front, with only the revised gross domestic product and personal income and consumption numbers on tap. See economic calendar and forecasts and historical economic data.
In currency markets, dollar/yen lost 0.1 percent to 106.95 while euro/dollar rose 0.7 percent to 0.9030.
In the commodity market, June crude fell $1.28 to $28.61 while the Bridge CRB index climbed 0.48 to 223.83. View latest commodity prices.
Julie Rannazzisi is markets editor for CBS MarketWatch. |
