Consolidation, A Pause, Call It What You Want...
After six straight days of gains for the NASDAQ and six straight
days of higher closes for the Dow, many investors were expecting a
pull back. Regarding the Dow, that's exactly what they got, as the
DJIA gave back 80 points to 11,257. However, if you were hoping
for a little breather in the COMPX, you'll have to keep waiting.
The ultra-resilient COMPX eked yet out another gain, though small,
of 8 points to 2314. Is this market resilient or what? Apparently,
traders and investors have expanded their horizons, woken up,
whatever you want to call it, but they have shifted away from
worrying about current numbers, focusing on what Wall Street will
be like six to nine months from now, like they should be.
Let's take a step back, remembering what has happened. Since
January 3, the Fed has lowered short-term interest rates by 250
basis points. Going back a tad further, say thirty years or so,
every time the Fed has "blessed" us with five straight rate cuts,
that little-known index called the S&P 500 has risen by double-
digits a year later, on average. Since 1971, every time the Fed
has cut 5 times in a row, stocks, overall, have increased an
average of 28% after one year. Let history be your guide. In my
humble opinion, the path of least resistance is higher, not lower,
at least until Greenspan starts raising rates again.
Checking out the Dow today, the old-school index finally took a
break, though only slightly, giving back 0.7%, ending at 11,257.
Only eleven of the Dow-30 finished the session to the upside. Make
no mistake, however, the trend is still up. Since flirting with
the 9500-level in late-March/early-April, the Dow has risen some
1700 points (18%). With the index now sitting at 11,257, the next
step for the industrials is resistance at 11,425 and of course the
all time high at 11,750 (intra-day). Support is of course at 11k.
In the news, Bill Gates' tiny software outfit put smiles on the
faces of security software firm McAfee.com (NASDAQ:MCAF +4.40),
announcing a strategic alliance with the company, in which MCAF
will integrate its software, including anti-virus, privacy, and
firewall products, with Microsoft's .Net Internet servers. The two
will also integrate McAfee's software with MSFT's Passport and
Hailstorm Web-based software services. MCAF shares soared 54% on
the news, closing at $12.50.
Just when it looked like things couldn't any worse for Ford Motor
and its relationship with tire maker Firestone, we give you
Tuesday's latest. Today, Ford said is it recalling some 13 million
tires, taking a $2.1 billion charge in the process. CEO Jack
Nasser said, "We feel it's our responsibility to act immediately."
The announcement comes a day after Bridgestone-Firestone announced
it was breaking off its 95-year relationship with Ford, after Ford
demanded that the tire maker recall additional Wilderness AT tires
after presenting an analysis of the tires.
The battle for Wachovia Bank (NYSE:WB +0.55) intensified today, as
First Union (NYSE:FTU +0.70) sweetened its offer, saying that it
will guarantee WB's dividend of 60 cents per quarter. FTU's bid is
$13.1 billion, while rival bidder SunTrust (STI) has a $13.8
billion deal on the table. While FTU has said it would NOT trump
STI's higher bid, it has taken out full-page ads in the WSJ, NYT
and other papers, saying that STI "hostile" takeover would lead to
the "gutting of Wachovia." Bravo, FTU, bravo! Let the games begin.
Whatever the market will bear, as the saying goes.
Other NYSE-stocks making headlines included shares of media giant
AOL Time Warner (NYSE:AOL AOL +0.64), which added 1.1% to $57.24.
The New York-based company said it would raise the monthly price
for its unlimited use plan by $1.95 to $23.90 beginning in the
July billing cycle. AOL has more than 29 million subscribers. That
translates to roughly an additional $56.5 million per month, or
1.1 billion per year! How's that for cash flow, baby.
Breadth on the NYSE was nothing spectacular, logging 1.25 billion
shares by day's end. Decliners did edge out advancers 16-15, but
when it comes to new highs/lows, the tide has turned. New highs
crushed new lows 238-18.
Over at the NASDAQ, the word of the day was IMPRESSIVE. Resilient
might be another appropriate expression. The COMPX has now
completed six straight days to the plus side, which of course
prompts the question: have we come too far too fast? On one hand,
one could argue that three of the past four days' gains (not
including Friday's 106 gallop on Friday, have only amounted to
just 40 points. On the flip side, since hitting an intra-day low
of 1620 on April 4, the COMPX is up a staggering 42 percent. The
other major argument for a higher NASDAQ is the fact that the
index is still 45 percent from its record high of 5048, logged in
March of last year.
Anyway, as far as Tuesday's numbers go, the COMPX eked out yet
another positive close, closing up 8 points at 2314. With the 100-
dma (2245) now support, many technicians say that there's no real
reason why the NASDAQ couldn't run to natural resistance at 2500,
ideally to the next big batch of congestion around 2900. The
question is will this recent complacency with the NAZ translates
to investor frustration, i.e. selling;, or will they view these
recent moves as consolidation before the next leg up?
The biggest news, aside from the MCAF's deal with MSFT, had to be
AT&T's (NYSE:T -0.76) order for optical networking equipment from
CIENA (NASDAQ: CIEN +3.51). While no financial details were given,
the order from AT&T was seen as a huge positive for CIEN, as T has
historically purchased from larger players such as LU or NT. CIEN
closed up 5.7% at $64.30, while T shares fell 3.4% to 21.15.
Breadth was nothing impressive, as 2.3 billion shares crossed the
wires. We're starting to see evidence that sellers are no longer
having their way, suggesting that the odds of a NASDAQ 2500 are a
better bet than a retest of 2000. The ratio of new highs to new
lows, which had been dominated by those on the down side, has
certainly changed. Some 201 stocks close at new 52-week highs,
while just 40 reached new lows.
As far as the broader indices were concerned, they ended in mostly
quiescent fashion. The large-cap S&P 500 Index (SPX) ended
Tuesday's session down 0.2% to 1309, the small-cap weighted
Russell 2000 (RUT) finished up 0.26% to 517 and the Wilshire Total
Market Index (TMW) closed south by 16 points to 12,125.
Those looking for some "excitement in the bond market" (definitely
an oxymoron), offsetting the lack of enthusiasm in equities, had
to keep looking. The 10-year note closed down 9/32 at 96-30/32,
sending the yield up to 5.41%. The price of the 30-year Treasury
also eased, giving back 18/32 to 94-10/32, kicking the yield up to
5.78%.
Sector winners today included Networking (NWX:1.9%), Airlines
(XAL:+1.7%) and Banking (BKX:+1.9%). On the losing side were Gold
stocks (XAU:-4.5%), Insurance (IUX:-1.1%), Healthcare (HCX (HCX):
-1.1%), Chemicals (CEX:-0.9%) and Cyclicals (CYC:-0.6%).
Personally, I like these kinds of days. Sure, they may not be the
most conducive for trading, but we need days like these just so
the market doesn't "get ahead of itself", if I may use the
hackneyed premise. Call it consolidation, call it a pause, call it
a lack of a catalyst now that we've reached the end of first
quarter earnings season, but, overall, things are changing, and
seemingly for the better. The companies driving this recovering
market are also changing. Today, a COAL company (yes a COAL
company) called Peabody Energy (BTU) went public at $28 and
finished up $7.15, 32% higher to be exact. COAL? Yes, coal. A year
ago, you would have had to attach 5 warrants of the latest dot-com
to shovel this one into investors' pockets, but today, with the
energy crisis we face, the company's 15 million-share offering was
actually OVERSUBSCRIBED. Boy, I guess if you live long enough, you
get to see it all.
When trading, be like Jack...nimble and quick. |
