dailymarketsummary.com
July 14, 2003
Can Uncle Al “Spin” Stocks Even Higher?
Asia was mostly higher once again last night. The Nikkei rose a percent but continues to churn just below the 10,000 level. The JGBs rose a touch in yield to 1%.
Europe was up nearly 2 percent this morning, with the German DAX making a new high for the move. The US futures were also blazing to the upside, as one has come to expect every morning lately. We gapped up big at the open and never even paused for breath as we quickly rallied another percent. That put the NASDAQ at another marginal new high, while the other 2 primary indexes (the S&P500 and the Dow Industrials) once again failed short of one. The early morning push put in the high for the day, and we proceeded to flop around near those highs for most of the rest of the day. As we neared the last hour, we began to roll over. As we broke below the afternoon’s trading range, we made a steep drop of almost a percent in a matter of 2 minutes that took us to a new low for the day. It quickly circulated that this selling was a trading “error” in the e-mini contract (after all, in hopers’ minds aren't all sell orders "errors" these days?). Whether it was really an “error” is not that important. What mattered was that we did not snap right back to the upside. We bounced a bit as hopers tried to reassure themselves that the “action” was still “okay,” because the giant intraday slide was just an “error.” That bounce quickly fell apart though, and we dove to another new low for the day (which I suppose in hopers’ minds was also an “error”), sending us out on the very worst levels of the session. However, due to the giant gap up opening, we still closed positive in all the major averages. Volume picked up again (1.4 bil on the NYSE and 2 bil on the NASDAQ). Breadth was slightly positive on both exchanges.
Another house upgraded INTC to super duper buy this morning ahead of tomorrow’s earnings after the close, giving us the third or fourth such upgrade in the last 5 days. INTC closed up 3 percent to a new high for the move, although it was even higher for most of the session and actually closed below its open too. The rest of the chips were also rabidly chased, with gains of 2 to 4 percent being the average. The semi equips were on fire, however, and easily outdid their chip-making customers. KLAC jumped 5 percent, NVLS 6 percent, and once again, the second tier stuff did even better (because speculators love trashy stuff so much). For example, BRKS launched 15 percent to a new high for the move. AMKR, which is likely a zero sooner rather than later due to the amount of debt that they are carrying, jumped 9 percent to a new high for the move and stands at $17 after trading at $1 back in October. Why all the speculation in the equips today? That’s easy. The annual semicon trade show was going on today, and it was semi equip day. All manner of equipment companies spun yarns to eagerly panting analysts about the great things that they hope will happen in the second half. Unfortunately, once again none of these companies had any facts to point to support their hope (not that the lack of facts bothers stock gamblers, but if you’re a stock investor, it should bother you). The SOX rose 3 percent.
The Internet trash rallied once again, but the first tier trash never really got going. YHOO announced it was buying OVER for cash plus wampum (meaning “stock”). That news sent OVER up 12 percent and YHOO up a penny. AMZN rose 4 percent but shy of a new high. EBAY rose a percent but also couldn’t quite make a new high. The IIX Internet index rose a percent and likewise couldn’t quite power higher. The 3rd tier trash was on fire, however. LOOK jumped 26 percent, CMGI jumped 32 percent, and ICGE jumped 53 percent, making it a 75-cent stock instead of just a 50 cent one like it was on Friday. Two of the Chinese net trash triplets made new highs too. If YHOO and the tier one trash get back into gear again and start making new highs, it’s likely going to signal a whole other leg to this insanity.
Financials were on fire. The BKX rose 2 percent to a new high, and the XBD rose 4 percent to a new high. The excitement in the financials was kicked off by C and BAC this morning, after both reported strong Q2 results. Both cited mortgage finance as the main driver (which should be no surprise to anyone that has had a pulse lately). However, with rates no longer moving lower, recent mortgage data suggests that those days are now over. C also raised its quarterly dividend to a “whopping” 35 cents, giving it a “massive” 3 percent dividend yield (whoopee?), which also got some people pretty excited I think. The derivative king rose 4 percent to a new high, while GE fell 8 cents and continues to drift near its low for the move. Mortgage lenders were higher by a percent or two, while FRE and FNM were both up a percent.
Retailers were mostly higher but not by much. The RTH rose just a touch. The homebuilders were up a couple percent for the most part but continue to underperform the rest of the market.
Crude oil was off a penny. The XOI fell half a percent, and the XNG fell over a percent. The CRB was flat. Gold gapped up $2 in NY this morning and spent the rest of the session trading in a sideways chop to end near its best levels of the day, up $2.70 to $347.80. The HUI was flat.
The US dollar index was up a touch. The yen was flat, and the euro was off a freckle to a marginal new low for the move. Treasuries were thumped in the long end once again, as the yield on the bond.com rose to 3.71% and back to its high for the move.
Tomorrow, Uncle Al will be on the Hill to try his best impression at a magic act and "will" bonds and stocks to go up based on the twin fantasies that the economy is recovering and that the Fed “will not allow” long rates to move higher. As we’ve discussed before, the Fed may try and buy the long end at some point, although it has backed away from this course of action recently. Part of the reason it has backed away from this may be the realization on the Fed’s part that such action won’t guarantee that long rates will fall. Too many foreigners own US treasury debt for such manipulation to work without there being a variety of negative consequences. Making the market sit up and beg like a puppy is not as easy as it sounds or as easy as the Fed wants it to be. If it was, we wouldn’t have been in a bear market for the last 3 years. It’s amazing how little people have learned over the last 3 years. Stocks start to rally, and everybody simply shrugs their shoulders and says, “Well, I have to join in too because they’re going up.” Everybody suddenly thinks that the Fed is omnipotent and will simply make the market do its bidding in order for this second half miracle to suddenly hop out of a box later this year. Yes, a big part of it is the way the system works, with relative performance pressure and such, but hope in Uncle Al, the maestro, is what makes it all possible.
According to hopers, the Fed just prints a bunch of money and presto… economic nirvana and the Dow is back at 10,000? “Re-flate” they call it (i.e.- re-inflate the bubble). So the bubble is good as long as it is expanding? Huh? This has to be the stupidest thing I have ever heard. You can’t just “re-flate” a bubble once it has busted. It doesn’t work like that and hasn’t worked like that for the last 3 years. The entire reason we are in this mess is because the maniac in charge of the Fed thinks it is his job to try and prevent recessions and selloffs in stocks. The Fed has been trying to “re-inflate” the bubble since day one of the bear market using the same monetary policies that got us into the bubble (i.e.- running the printing presses). They’re injecting the patient with stronger and stronger doses of the very drug that has him in the hospital already. Instead of curing him, they’re killing him. Yet, here we are, and the same guys that thought the Fed could save us in 2000, 2001, and 2002 are now aggressively buying stocks again with other people’s money based on the hope that this time it will work. This rant is nothing new, but it’s truly disgusting to watch this happen all over again just like in 1999 when I know without a doubt what the end result is going to be, just like I did then. Once it is all over, it’s going to make a great book someday, but I don’t know if our children will laugh or cry.
Tomorrow night, we’ll hear from a bunch of chip-related companies, including MOT, TER, RFMD, AMCC, and of course the headliner, INTC. People have gotten so whipped up in front of INTC that I don’t see how the report cannot be sold on Wednesday, especially since I think INTC’s Q3 guidance will not live up to the hopes that many have.
Not only did stocks “not go down well” today, but the NASDAQ actually made a marginal new high. I am still expecting stocks to move lower off this week’s Q3 guidance, but I guess we’ll find out soon enough.
While I cannot provide personalized investment advice or recommendations, I welcome feedback and observations by subscribers.
You can email me at Lance Lewis.
Disclaimer: Lance Lewis periodically publishes columns expressing his personal views regarding particular securities, securities market conditions, and personal and institutional investing in general, as well as related subjects.
Mr. Lewis is the president of Lewis Capital, which manages a hedge fund in Dallas, Texas. This fund regularly buys, sells, or holds securities that are the subject of his columns, or options with respect to those securities, and regularly holds positions in such securities or options as of the date those columns are published. The views and opinions expressed in Mr. Lewis' columns are not intended to constitute a description of the securities bought, sold, or held by the fund. The views and opinions expressed in Mr. Lewis' columns are also not an indication of any intention to buy, sell, or hold any security on behalf of the fund, and investment decisions made on behalf of the fund may change at any time and for any reason. Mr. Lewis' columns are not intended to constitute investment advice or a recommendation to buy, sell, or hold any security.
Copyright © 2002 Lewis Capital, Inc. All rights reserved. |
