Many Fear Missing a Rally By Aaron L. Task
02/13/2003 18:30
A common refrain among investors these days -- especially retail types -- is that there's no reason to buy shares, given the geopolitical and fundamental backdrop. But on Wall Street, the majority of participants have seemingly been waiting for "everybody else" to throw in the towel so they can pounce and buy. Certainly few have sworn off stocks, and there were few signs of panic at Thursday's intraday lows.
"Every trader in the country is either covering shorts, beginning to get long, or doing nothing, waiting for something to happen so they can buy," observed one market participant. "Even RealMoney columnist and ultra-bear Bill Fleckenstein's looking for a rally!"
Given that, it's not so surprising the major averages finished well off their session lows, even though there were no glaringly positive developments on the geopolitical front Thursday afternoon or any evidence that Wall Street suddenly learned to stop worrying about war or terrorism.
After trading as low as 7628.99 at about 2:30 p.m. EST, the Dow Jones Industrial Average rocketed higher to as high as 7781.89 in the final hour of trading before closing off 0.1% to 7749.87. Following similar patterns, the S&P 500 closed down 0.2% to 817.37 after trading as low as 806.29, and the Nasdaq Composite was off 0.1% to 1277.40 vs. its nadir of 1261.80.
Elsewhere, crude futures hit a 29-month high, closing up 1.7% to $36.46 per barrel. April gold futures closed up 4.7% to $357.70 per ounce. The Philadelphia Stock Exchange Gold and Silver Exchange Index rose 4.6%.
The dollar recovered somewhat from its intraday lows in conjunction with stocks, but the U.S. Dollar Index still ended down 0.82 to 99.69. Similarly, the price of the benchmark 10-year Treasury note finished off its best levels of the session but still up 15/32 to 100, its yield falling to 3.87%.
In sum, financial markets acted logically, given the rising expectations for war -- which was the dominant message of the early headlines -- including the rebound in shares if one believes stocks will rally when the bombs start dropping.
Defectors and Dell Fanatics
The stock market's afternoon bounce was attributed by some observers to rumors of a defection by an aide to Saddam Hussein's oldest son. Additionally, some traders were reportedly buying shares -- or covering shorts -- ahead of Friday's address before the U.N. Security Council by chief weapons inspector Hans Blix. Some hope Blix will provide some clarification/resolution on the timing of war, which most participants believe will trigger a rally in stocks. Earlier, Russian Deputy Foreign Minister Yuri Fedotov said Blix will report that Iraq has made little or no progress in terms of complying with inspectors.
Then there's also the possibility of a "delayed reaction" to the morning's economic data, specifically the stronger-than-expected retail sales, excluding autos. I suspect some news reports will use that explanation, but I'm a wee bit skeptical.
Beyond the war talk, one trader suggested that short-covering and/or outright buying was emerging in the fear/hope that Dell's DELL earnings report would provide a rationale for a rally, or a least a short-term bounce. (Salomon Smith Barney was rumored to be a "big buyer" of S&P futures ahead of Dell's report, according to another source.)
After the bell, Dell reported fourth-quarter earnings of 23 cents per share on revenue of $9.74 billion, both in line with expectations. The PC maker forecast that first-quarter earnings will be roughly flat but that revenue will see a slight seasonal dip. More importantly, Dell gave guidance for the April quarter that is slightly above expectations. Dell shares were trading above $24 in after-hours activity vs. the regular session close of $23.25. Simultaneously, there was a sharp rally in Nasdaq 100 e-mini futures after Dell's report. However, S&P futures were down 1.40 to 817.60, and Nasdaq 100 futures were off by 2.50 to 959 in Globex trading as of 5:40 p.m. EST
Beyond fundamental rationales, there were some technical explanations for the bounce -- or at least trigger points reached that may have prompted buyers to emerge.
Charts in Alignment
Earlier today , I mentioned (again) the 807 level John Bollinger cited as an area where the S&P might "make a stand," as it marked the lower end of the index's Bollinger Band, which had recently turned upward. In a subsequent exchange, Bollinger observed that the Bands are "widely looked at" by short-term traders, and therefore such levels can become, to some extent, self-fulfilling mechanisms. (He, of course, believes the Bands were effective before they were so widely disseminated.)
Separately, the Nasdaq bounced after trading just below a key Fibonacci level at 1266, which marked a 61.8% retracement of the Comp's move from its Oct. 10 intraday low of 1108.49 to its Dec. 2 intraday high of 1521.44.
Less dramatically, the CBOE Market Volatility Index traded as high as 40.68 intraday before closing down 1.7% to 38.45. That was the VIX's first move above 40 since Jan. 27. That Jan. 27 move marked a temporary reprieve in the harsh selling earlier this year.
Finally, trading volume remains relatively subdued, and thus the market is subject to volatile moves. In Big Board trading, 1.45 billion shares were exchanged -- up from recent levels but not heavy -- while 1.1 billion traded over the counter.
Without trying to belabor the point, Thursday's session exemplifies the point of a story here about technical developments trumping war fears : The market often does what it's going to do, regardless of the fundamental backdrop.
Enjoy the Silence
The aforementioned is also intended to show how a confluence of factors is keeping the market in flux and traders' heads spinning. It's enough to give you a headache and make you long for a few days of R&R.
Fortunately for me, I leave for a long-scheduled vacation Friday and don't plan to return until Feb. 24. |
