well, it's not technical, but here's Lance Lewis' comments on the market, including the Sox. His essential thought is the rally could fail at any time
dailymarketsummary.net
A Rally Finally Appears
Asia was mostly lower last night, with Japan falling 2 percent. Europe was up a percent or so this morning after being even higher early on, and the US futures were sharply higher. We gapped up big at the open and immediately began sliding. The selloff accelerated when August existing home sales came in down 2 percent from July’s levels rather than up a percent as people were expecting. We quickly filled the opening gap and then turned on a dime and rallied virtually straight up for most of the afternoon. The last hour saw some choppiness and a small giveback from the highs of the day, but we basically ended on the highs. Volume picked up again (1.7 bil on the NYSE and 1.7 bil on the NASDAQ). Breadth was over 2 to 1 positive on the NYSE and a touch less than that on the NASDAQ.
Everybody’s favorite DRAM maker Micron (MU) missed its estimate by a mile and spit up a loss of 27 cents (it was actually 97 cents when you include a write-down of inventory and a noncash charge related to income taxes). To put this loss in perspective, I should point out that the company had $748 mil in revenue and managed to post an operating loss of $468 mil (their gross margin was a negative 28 percent). Of course, bulls were actually excited by this news because MU’s revenue came in above estimates. Just think… if MU could have sold even more parts at a loss, they could have lost even more money! And I thought we were past days of people thinking that an Internet company selling $2 for $1 was a good business?
Additionally, (I had almost forgotten about his little gem) if you bothered to read the footnotes, you were reminded that MU issued a put to Toshiba when it bought its DRAM operations for stock and cash back in April. The 1.5 mil shares Toshiba received was valued at $58 mil back in April, and MU will be required to buy those shares back for $68 mil on October 21, 2003 if MU does not trade at or above $45.05 for 20 consecutive trading days during the option period. With the stock beginning the option period in the $30-range and since having fallen to $13, the chances of that happening are probably about as good as the chances that President Bush will become golfing buddies with Saddam Hussein over the next year. With MU’s cash levels having been cut in half since this time last year, I hope for Toshiba’s sake that MU still has the money next October. In any event, MU was caught up in the general short covering rally today, and after opening down to a new low, it managed to close up 3 percent. This chronically money-losing business still isn’t cheap, as it trades at almost 4x sales even after its latest plunge to new lows. From 1989 to 1998, MU traded at an average of 2.1x sales.
MU also said it was cutting cap ex further from a range of $1 to $1.5 bil to a new range of $.8 to $1.2 bil. We’ll no doubt be seeing a lot more cap ex budgets being cut in October when the rest of the semis report. There’s a very good reason that many equipment stocks are trading down in the single digit area today. Of course, that didn’t really matter today because when a short covering rally begins, everything goes up. On average, the equips were up between 4 and 9 percent. The chips were frisky as well. MU was mostly ignored, and instead people focused on the fact that RFMD guided up the current quarter to a profit of 3 cents instead of 2 cents and guided revenue up to $118 mil instead of $114 mil, to which I say “thank goodness,” because it’s trading at 3x sales and over 100x trailing earnings. Nobody seemed too excited about RFMD itself though, as it only managed a 2 percent rally. The SOX, however, posted a very respectable 7 percent gain on the day.
Basically, if it was in tech, it was higher today. It’s just the usual short covering that we see from time to time. There may also be some quarter end effect here as well, but who knows. Like I’ve been saying, some sort of attempt at a rally down here near the July lows is to be expected.
Financials were mostly higher. The BKX and XBD both rose 3 percent. The derivative king rose a percent. GE rose 5 percent after it said that Q3 remained “on track.” Of course, what was ignored was that GE also said that it saw, “no sign of cap ex improving” and that the second half “won’t show US recovery.” Elsewhere, the subprimes were mostly higher, but the gains were unusually muted and mostly in the 2 percent range (except for ACF of course, which has been heavily shorted recently). FNM and FRE didn’t participate in the rally (FRE actually fell to a new low for the move), as both fell 1 percent. That’s certainly not a very good sign for this bounce making it very far.
Surprise, surprise, retailers and restaurants were mostly higher like everything else. And homebuilders were mostly higher by 2 or 3 percent ahead of tomorrow’s August new home sales.
Oil fell 16 cents. The XOI rose 2 percent, and the OSX rose 5 percent. Gold slipped a dollar or so overnight, setting up a gap down at the opening in NY. The metal flopped along in a sideways chop for most of the day before diving off the cliff late in the session to end on its low, down $3.60 to $323.60. The HUI fell 3 percent. Are gold and its shares headed for an extended correction here? Possibly, but I don’t think so. However, I will be interested to see how they trade over the next week or so.
The US dollar index rose a touch. The yen rose a hair, while the euro fell half a penny. Treasuries were smacked. The 10yr was beat for almost a full point, as the yield rose to 3.75%.
Well, the rally we’ve been looking for finally started today. The question now is where does it fail? Because when it does, we’re likely in for a mammoth move lower. Now, quarter end is on Monday, and I suppose there’s a chance that we could see some sort of mark-up into Friday, but I’m not so sure that funds have the extra cash lying around for that sort of silliness. If we see some sort of ramp into Friday, it may be more a function of shorts simply covering for the quarter end rather than anything else. Either way, all we can do is wait and watch for failure, but I have a sneaking suspicion that this rally may collapse a lot faster than we have seen in the past. So, we may want to be sure and be on our toes for the next week or so. |
