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Market Matters A daily recap of all things financial Don Bravo Somehow This Doesn't Seem Right - February 11, 2005
The chart below is of the Dow Jones Industrial Average for Friday, Feb. 11, borrowed from Yahoo! Finance.
What strikes me as odd about this - and don't get me wrong, I love seeing the US economy as robust and prosperous as the next guy, but though I believe there are problems aplenty - is that everybody got the idea at the same time - between 10:30 and 11:30 - to buy stocks, and then kind of took the rest of the day off.
The Dow, and for that matter, the rest of the indices, really took off on a tear at about 11:15. The Dow had been down 40 points, but spiked to be up nearly 80, a nice move of 120 points, or 2 points per minute on average. Healthy? Simply unbelievable.
Maybe this line from briefing.com in their 11:00 am note holds some insight as to what took place: "Contributing to the recent recovery effort has been a large S&P futures related buy in..."
Think that a bunch of well-connected investors with unlimited capital (yes, UNLIMITED) could manipulate the entire market? Think again, and that chart and the comment in the preceeding paragraph hold testimony. Bidding up futures is exactly what the Plunge Protection Team (PPT) is all about.
Read more about the PPT HERE.
I was concerned about this kind of market action on the night of the President's inauguration, wherein he spelled out his Social Security Private Account (SSPA) plan.
Now, if the President is hell-bent on sending 1/3 of what now goes into Social Security over to Wall Street, wouldn't it be just peachy to have a super-powerful non-stop rising market to enforce his claims that it's "good for America?"
Gentlemen and gentlewomen, we're being played. And while the majority of investors have to be overjoyed at the current rise in the market, are we being sold a phony bill of goods? When the SSPAs finally get their chance to play the market, stocks will be so overvalued as to be untouchable. And when that happens, stocks go down. Saving for a secure retirement? Guess again.
If Mr. Bush gets his way - and doesn't he always? - Wall Street brokerages will be the recipients of one of the great windfalls ever in the history of global finance - to the tune of some $12 billion a month being funneled through SSPAs. And that number will grow over time, and it will never end.
Believe me, if I were the head of Goldman, Saks or JP Morgan, I'd be fully supportive of the President's plans. I would even be betting with my own money on a strong stock market.
But here's the rub. Suppose the plan doesn't fly through Congress. What then? Once there's a hint that the Democrats can shoot it down (currently I don't see how they can), there will be a rush for the exits on Wall Street unlike anything since 1929.
That will likely not happen. What's more likely is that the Bush plan succeeds in becoming law and millions of unsuspecting Americans buy in with their forced savings through Social Security. I'll leave it to your collective imaginations to figure out what happens in 5, 10, 15, 20, 30, 40 years.
My hunch is that the major beneficiaries of the SSPA plan are going to be our highly-unregulated, slick Wall Streeters, who conduct their business under the watchful eye of the ever-slack and sleeping SEC.
My advice: buy stocks, any stocks, but especially big names, blue chips and tech leaders.
For the record, the NASDAQ closed at 2,076.66, up 23.56; the NYSE Composite ended the week at 7,261.64, higher by a very healthy 50.99. The NASDAQ especially showed tremendous strength... after being the market laggard most of the week.
Happy trading!
Tech Sluggish; NYSE near 2005 Highs - February 10, 2005
With another day of ho-hum economic news in the bag, there are those amongst us who still see buying opportunities. Some are seen on the DJIA, others, apparently on the NYSE, but not many on the NASDAQ.
The NYSE Composite closed at 7,210.65 up 48.66, within striking distance of a new high for 2005, while the NASDAQ ended the day at 2,053.10, only 0.55 to the positive.
Why tech is suddenly a laggard is barely a question worth asking. It is, and the explanations run the gamut from the usual, "sector rotation" and "flight to quality" to the more adamant, "tech is overbought."
And maybe it is, though the NYSE Composite index heading for a 52-week high (7,253.56 on December 30) off it's bottom at 6,217.06 on August 12 of last year without a significant retracement - take your pick, 33, 50 or 67% - is an equally compelling scenario.
The current whole bull run began back in March of 2003, and the market was significantly overbought in early 2004. By late March of last year, the market began to sour and did so, in fits and starts until the aforementioned August bottom.
In the current climate, overvalue is OK and no bad news comes without a silver lining, so why not party like it's 1999? Now THAT was a GOOD year.
A number of overhangs still exist, though most analysts won't discuss them and brokers never mention them to clients. Probably the least mentioned is the relatively flat - and narrowing - yield curve between 10 and 30-year bonds.
That esoteric metric is shrinking, and quickly, from 54 basis points a month ago to 39 today. The danger is that it becomes inverted, which is a sure sign that either the market is off-track or that creditors become risk averse in the short term and drive rates skyward or that the economic conditions are heading in the wrong direction.
As it stands, the 10-year is at 4.07%, the 30 at 4.46 and the short term rally in bonds may have run it's course as of yesterday.
These rates are still at historically low yields, and the Fed's continued tightening will eventually push prices lower and yields higher.
Another overhang worth noting are commodity prices, which continue to rise, albeit at a slower pace than 12 months ago, oil notwithstanding. Add to the mix the dual deficits, trade and government, and you have a nasty mix of elements, any one of which could cause significant upheaval not only in credit and equity markets, but in paper trade as well, i.e., currencies.
As dizzying as all this sounds, as I write, more silver linings... as Dell reports lower earnings - .26 per share after taxes on foreign sales - despite record earnings. The earnings from overseas will be taxed at a lower rate than previously, and absent the .11 in taxes due, Dell beat estimates by a penny. So, is this good news or bad?
Bad, I guess, as Dell was up .58 at the close today, but is down 1.34 after hours.
The markets will sort this all out tomorrow. The NASDAQ is almost certain to end it's winning streak at two weeks, while a small gain will push the NYSE over the top.
Happy trading!
REALITY CHECK - February 9, 2005
Sometimes I wonder just what is going through the heads of analysts when they say things like this, as reported in an AP story this morning:
"A lot of bad is factored into technology in general, specifically Cisco, so as long as they didn't miss in a big way I think it can be construed as a positive," said John Hughes, managing director at Epiphany Equity Research.
What I'd like to know is what is all the "bad" factored into technology, when most tech stocks are trading with p/e ratios over 25. To me, if there was "bad" factored in, tech stocks would be depressed. Alternately, I take the other side of that opinion, in my belief that tech stocks don't have enough "bad" ever mentioned, like the high valuations, pro forma accounting (I can't believe this is still allowed and practiced!), and the reporting and accounting for employee stock options (June will be here soon, and then all quarterly reports will have to account for these off-the-books liquidity drainers).
Just for the record, Cisco didn't miss badly - they hit their number, but the company did miss revenue estimates and lower their forecast for the next quarter. Shares of Cisco traded .61 lower today to 17.63, near its 52-week low of $17.41. It was the volume leader on the NASDAQ, with over 115 million shares changing hands.
Question to John Hughes: "Is all the 'bad' is now factored in?" As Bugs Bunny might quip, "What a maroon!"
The broad markets were hammered by persistent selling, with all the major averages closing within whispering distance of their intra-day lows, despite the usual late-day tinkering on the Dow.
Speaking of the oft-quoted and more often manipulated Dow Jones Industrial Average, that particular index was only kept from complete implosion by Hewlett Packard, whose shares jumped nearly 7% on BOD's dismissal of CEO Carly Fiorina.
Oddly enough, while all other media outlets were using words like "dismissed, ousted, forced out" the Wall Street Journal online headline read, "H-P Jumps After Chief Quits; Cisco Falls on Growth Outlook."
Good to know somebody is sticking up for the little guy... or girl, as the case may be.
Only 5 of the 30 Dow components were in the green on the day. You do the math for tomorrow.
Selling accelerated into the close, as all the indices suffered a near free-fall in the last 30 minutes. Shares on the tech-heavy NASDAQ were hit the hardest, losing 34.13 or 1.64% to close at 2,052.55. The NYSE Composite ended the day at 7,161.99, down 45.46.
Winners were rare on the NASDAQ, with declining stocks beating advancers by a 3-1 margin. The NYSE showed a bit more resilience, with a 2-1 ratio favoring the delincers.
NASDAQ Volume was particularly skewed toward the sellers, as down volume was 85% to a mere 13% on the upside. Overall volume on both the major exchanges was within average range.
Buyers, Sellers Take a Break - February 8, 2005
With the S&P 500 selling at 21 times trailing earnings and a dividend yield of 1.8%, investors have kept the markets in narrow trading ranges the past two days.
There is a dearth of economic and earnings news presently, so with little to push stocks in either direction, it's a wait-and-see attitude that is prevailing.
The NASDAQ gained a minuscule 4.65 today, putting it .02 above Friday's close of 2,086.66. After two days, there doesn't seem to be much left over from the rally.
The NYSE Composite was also higher, gaining 6.54 to close at 7,207.45, a reading ten points below Friday's close.
Tech investors await Cisco's (CSCO) fiscal 3rd quarter earnings after the close.
Stocks Start Week With Narrow Losses - February 7, 2005
After gaining ground over the past three sessions, both the NASDAQ and NYSE Composite took it on the chin Monday, but investors hardly punched enough to score a knockout.
While the NASDAQ was losing 4.63, the Composite dipped 16.52. Gainers and losers were roughly even for the session, though down volume was fairly dramatic on the NASDAQ, at 60% to 38% on the winning side.
The downside was limited due to continued good news on the oil futures front. The price of a barrel of light sweet crude closed at $45.28, down $1.20, on the New York Mercantile Exchange.
Meanwhile, President Bush sent his budget proposal up to Capitol Hill amidst criticism that his cuts were in the wrong areas and too much - especially $80 Billion the President will be requesting soon for military efforts in Iraq and the effects of his tax cuts and Social Security proposals - was left out.
The markets are sorely in need of a catalyst to continue their rally from the previous two weeks. Today's action indicated a lack of momentum, even with the easing on oil prices, and there isn't much on the economic calendar to propel the markets forward.
It's likely that stocks may come under pressure in the short term as investors become highly selective. The Congress must work through what is likely to be a very contentious session in coming weeks and the debates over the budget and Social Security are likely to dominate the headlines.
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