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Market Matters A daily recap of all things financial Don Bravo Winning Streak Ends On Sour Note - April 8, 2005
What had been a solid week for equities ended on a rather grim note, with all major indices falling throughout the day on Friday. The Dow Jones Industrials took the worst of it, point-wise, falling 84.98 points to end the week at 10461.34. The Nasdaq lost 19.44, equaling yesterday's gain, but again below 2000, albeit barely, at 1999.35. The NYSE Composite index closed at 7181.50, off 45.58 for the day.
Still, all the indices posted their first weekly gains in over a month. Declining issues beat out advancing ones once again, by a margin of more than 2-1 on both exchanges. New lows trounced new highs on the Nasdaq, 71-36, though the opposite was the case over on the Big Board, with advancing issues holding a 62-40 advantage over decliners.
Volume was light overall, but down volume was more than 3 times the up volume on the Nasdaq and nearly 4 times on the NYSE. The NYSE recorded more volume than the Nasdaq for the 15th consecutive day.
Despite the week-ending gloominess, bonds held relatively firm, with only the 30-year making any kind of move, rallying to drop yields to 4.75%. Gold and silver were again slightly higher, with gold gaining .80 to 426.50, and silver up a dime to 7.14. The US Dollar was solidly lower against all major currencies except the Canadian Dollar.
All told, it was a very disappointing end to the week, which some were hoping would signal an end to the persistent selling which has prevailed of late, but even oil dropping to its lowest price in some time ($53.32), investors were wary heading into the weekend.
Perhaps the corporate news was the primary mover, as of the companies mentioned here yesterday reported earnings, only one, Constellation Brands (SZT, +3.48), showed any strength, announcing a stock split and earnings of .62 per share. Analysts had been forecasting .58, and were pleasantly surprised. The company also received an upgrade from JP Morgan.
Shares of consulting firm, Accenture, were hammered lower on a reported reduction in the company's profit margin (ACN, -1.19). Likewise, retailer Pier One (PIR, -0.34), was sold off after the company report disappointed. Profit fell 61%, to 21 cents a share, versus 53 cents a year ago. The housewares retailer hit an 8-month low, though the damage to the stock is surely not yet done.
Rite Aid (RAD, -0.02), reported a profit, but it came mostly from tax adjustments. The shares are selling near all-time lows at 3.99, and the retailing environment is looking less and less attractive all the time.
Next week brings an onslaught of earnings reports which will provide direction for the markets.
Stocks Move Higher on Low Volume - April 7, 2005
Stocks on the New York exchange powered ahead for the fourth straight session, while the Nasdaq resumed its upward trend after yesterday's brief respite.
In the absence of any economic news, investors seem perfectly content to lay down bets in anticipation of a steady stream of corporate earnings reports, which will be flowing in earnest beginning next week, followed by an avalanche in the third and fourth weeks of April.
In early results, Alcoa (AA), reporting after the close on Wednesday, beat analyst estimates by a penny, posting a figure of .40 per share. Investors congratulated the company by boosting share prices 5% in Thursday's trading.
Home furnishings retailer Bed,Bath & Beyond (BBBY), did even better, posting earnings of 59 cents a share, versus 47 cents in the same quarter a year ago. The stock ended up 4.06, an 11% rise.
Not all company reports were as rosy. Shares of WD-40 Company (WDFC), were lower after the company - makers of household products such as 3-in-1 Oil, WD-40 and Lava soap - announced an earnings decline, from .36 a year ago to .31 in the most recent quarter. The stock was hammered early in the day, but recovered to post only a minor loss of .12, closing at 32.26.
Thus far, however, corporate first quarter reports have been solid, if not spectacular. Other companies which reported either after the close Wednesday or before the open on Thursday and showed positive momentum were health-related company, Immucor (BLUD); agribusiness Monsanto (MON); and busing concern, Laidlaw International (LI). Revenue and earnings growth, though early in the reporting season, spread across many industries, and investors responded in a positive fashion.
For the session, the NYSE gained 35.90, to close at 7227.08; the Nasdaq added 19.65, ending at 2018.79, and the Dow Jones Industrials were higher by 60.30. The Nasdaq, which outpaced all other major indices in percentage terms, closed at its highest level in over three weeks, dating back to March 15. Today was the first time the index closed above 2000 since March 30.
All breadth indicators were positive, except for new highs-lows on the Nasdaq, which were negative, 55-81. The opposite was the case on the NYSE, where new highs outnumbered new lows by a margin of 90 to 22. The story today was all about volume, which was relatively light overall, but mostly to the upside, 77-21% on the Nasdaq, 69-29% on the NYSE. Advancing issues also held sway over decliners, 3-2 on the Nasdaq and 5-3 on the NYSE.
Despite the solid advance on the Nasdaq, there were still more shares traded on the Big Board, for the 14th straight day. NYSE Volume:1,882,443,000; Nasdaq Volume:1,714,279,000.
Meanwhile, oil futures were being shellacked, down another $1.74, to $54.11/barrel. This positive development only added to Wall Street's buoyant atmosphere, as stock prices improved throughout the day.
Bonds were relatively muted in response, while gold and silver were also little changed. The dollar strengthened against the most-popular currencies. With all the good news coming straight from individual companies, investors would do well to focus on the earnings of companies reporting tonight or early tomorrow. Those include Pier 1 (PIR), Rite Aid (RAD), Accenture (ACN) and Constellation Brands (STZ).
Decimating Technology - April 6, 2005
Stocks on the NYSE turned in a positive performance for the third consecutive day, while the Nasdaq, which was the leader in the morning (up more than 17 points), abruptly turned around at 11:30 and ended the day with a fraction loss of .18.
The NYSE was also higher around mid-day, but the rally fizzled. The NYSE added 20.28 to close at 7191.18. The Dow was also up for the third straight session, higher by 27.56 to close at 10486.02. This week's gains for the Dow are an uninspiring 81 points. The widely-watched index of 30 industrials is still down more than 450 points since March 4.
If the recent pull back is indeed the resumption of the secular bear market which began in 2000, the retracement has hardly begun. The Dow began its recent bullishness on March 11, 2003, when it bottomed, closing at 7524.06. The date coincides with the initiation of military action in Iraq, which began officially on March 18 of the same year.
On the Dow, that's a rise of 3400 points to the closing high of 10940.55 in roughly two years, a 45% move, or an average gain of more than 20% annually, ranking it among the best two-year stock market performances in history. The Nasdaq and NYSE Composite showed similar, striking advances during that time.
It should come as no surprise then, with American troops occupying Iraq without a resolution to the conflict and the government having spent over $300 billion in taxpayer dollars during the time, all the while running obscene deficits, that the stock market might be having second thoughts.
Over the next three weeks, a raft of companies will report earnings for the first quarter of 2005, which may forestall the eventual re-adjustment as investors focus more on individual stock stories than the overall economic landscape, which is less than promising.
Today's activity can be summed up in three words: leaders turned laggards. The Nasdaq was fast out of the gate this morning, rising by as much as .84% before giving it all back. Shares traded on the NYSE gained momentum in the late morning - early afternoon, but eventually ended only modestly on the upside.
The stunning turn-about was accompanied by a radical shift in trading volume. By 11:30, Nasdaq volume was ahead of NYSE volume by some 63 million shares. At the end of the day, NYSE volume was the leader (for the 13th consecutive session) by more than 50 million shares. That's a shift in volume of 113 million shares.
Whatever the cause (see previous Market Matters daily columns for more discussion on this topic), the truth is that tech shares are being regularly and systematically disparaged and the money reinvested into NYSE issues. Since the start of 2005, the Nasdaq has been mercilessly pummeled on a near-daily basis.
Today was more of the same. While advances beat decliners on both exchanges, the margin was better on the NYSE, at close to 5-3. On the Nasdaq, the figure was a narrow 8-7. Nasdaq volume paints a bleaker picture, with down volume at 58% to 39% up volume. The NYSE enjoyed positive volume, 56-42%. New lows on the Nasdaq continued to overwhelm new highs, 96-76, while the opposite was the case on the NYSE, with only 20 new lows and 94 new highs.
Bonds rallied slightly, pushing yields lower. The 10-year closed at 4.42%. The price of oil was down slightly, while gold and silver bounded higher. Gold closed at 427.20, silver at 7.12.
Currency traders didn't know what to make of all this, sending the greenback on a roller coaster ride all day. The US dollar closed higher against the Australian and Canadian dollars, as well as the Japanese Yen. It was lower against the Swiss Franc, Russian Ruble, Mexican Peso, Brazilian Real, Indian Rupee, British Pound and the Euro.
The next few weeks will be interesting if only to see whether US corporations were able to deliver the goods in the form of higher earnings for the first quarter. Judging by the number of pre-release warnings, investors will be on their toes, ready to jump ship at any signs of trouble.
Can It Be True? Stocks Gain Again - April 5, 2005
On a day which more resembled sitting around watching grass grow than the hurly-burly of the stock exchange, equities traded positively in very narrow ranges throughout the day and closed to the upside for the second consecutive day.
It was the third time since March 7 that the NYSE Composite finished higher two straight sessions; only the second time for such an occurrence on the Nasdaq during the same span.
The trading bands established early on were between 1994 and 2002 on the Nasdaq - a range of only 8 points - and 7165 to 7180 on the NYSE.
The Nasdaq finished at 1999.32, up 8.25; the NYSE was ahead 33.37 to close at 7170.90; the Dow closed higher by 37.32, at 10458.46.
New lows were however the order of the day on the Nasdaq, as 119 companies hit bottom, as compared to only 50 new highs. The reverse was true on the NYSE, with 74 new highs and 38 new lows. Advancers beat decliners in ratios of 9-7 on the NYSE and 8-7 on the Nasdaq.
Oil was down in price again, closing at $56.05, gold and silver were modestly higher, though the dollar fell slightly against world currencies. Bonds were relatively quiet.
As has been the case for the last 11 sessions (now 12), NYSE volume was higher than that on the Nasdaq. A perplexing situation, this kind of shift is suggesting a paradigm change in investor sentiment away from tech and into more mainstream issues, as I have mentioned here before.
While this shift was first noticed here a couple of weeks ago, it has largely escaped the purview of the regular financial press, and I haven't been able to find an explanation for the phenomenon. Normally, Nasdaq volume is the greater of the two, in the range of more than 95% of the time. The last time I recall seeing this volume shift was in the summer of 2002, and then it lasted only a few days. I have never seen the two indices switch volume leadership positions for such an extended period - at least not as far back as 1998.
Possible explanations range from the plausible to the ridiculous. Most prominent would be that investors are shifting their focus into NYSE issues which offer dividends, though I have no empirical evidence that this is indeed the case. A volume shift of this magnitude - we're talking about an average of 200-500 million shares a day moving from one index to the other - is not accomplished in a void. There are certainly large institutional forces at work, and they are working hard.
The only plausible explanation is that institutions (brokerages and funds) are making a gradual exit from Nasdaq-listed companies and into stocks listed on the NYSE. The two exchanges have been at each other's throats for some time, especially since the tech boom of the late 90s, which saw the Nasdaq become the exchange of choice for high-value IPOs. There is certainly competition for business between the two exchanges, though I am unfortunately not privy to intimate details and therefore can only speculate as to the cause of the volume move and its implications.
One theory, which may not be wholly absurd, is that the larger industrial firms are planning massive takeovers of selected tech firms and are purposely pulling money out of them in an attempt to depress their value. It probably wouldn't be the first time big money used its trading power to induce a lower price in advance of a takeover bid, though the scale of this assault (if that's what it is) places such a notion in the tin-hat conspiracy category rather than that of regular financial discourse.
Still, the indications are in place that massive amounts of money have moved from Nasdaq-listed stocks to their brethren on the NYSE. Consider that the Nasdaq, already beaten down from the dot-com implosion of 2000, has lost 8.1% of value since the end of 2004. In the same period, the NYSE has only declined 1.07%, a difference of more than 7%.
Now, 7 percent may not seem like much, but when one is comparing two gigantic stock exchanges (3430 issues on the NYSE, 3206 on the Nasdaq), it becomes obvious that the Nasdaq has fallen out of favor. Statistics like this prove little, if anything, though one could make the case that the Nasdaq's singular underperformance might fuel further deterioration in share values.
On the opposite side of the coin, the Nasdaq issues might just be coming down in price to more accurately reflect investor sentiment away from perceptibly riskier, more speculative issues, which are rampant on the Nasdaq.
So, is Exxon-Mobil planning to take over Ebay? Will Morgan Stanley broker a deal between Merck and Adobe? Is the "old" economy planning to exact its revenge on the "new" by driving their stocks down and then buying them out? Stranger things have happened, and I'll reserve my judgment until I see more evidence.
Whatever the case, trading volumes on the two main exchanges bear watching until they play out to some kind of resolution. We may have entered yet another new age, except this time, it's not the "new" economy thriving, but rather suffering.
Merrill Lynch-ing Their Client Base - April 4, 2005
I had to stop and read this report twice before I finally broke out in complete hysterical laughter, followed by an exasperated sigh. It was posted on Yahoo! Finance and I have reproduced the highlights here. If you want to read the entire thing, in it's entirety, click HERE.
U.S. stocks poised to recoup losses-Merrill
NEW YORK, April 4 (Reuters) - U.S. stocks are poised to retrace "a substantial portion" of their March declines in April and may be ready to hit new post-2002 highs, Merrill Lynch said in a note to clients on Monday.
-- Second-quarter performance has tended to show improvement over the performance of the first quarter. From 2000-2005, all three averages, the Standard & Poor's 500 , the Dow Jones industrial average and the Nasdaq Composite have had an "up" second quarter three times.
-- The 2005 second quarter is poised to at least start on a firm note because the March pullback can be viewed as "normal" -- none of the averages retraced more than half of their uptrends from their August/October lows. And near-term indicators show indexes as being oversold and poised to rebound.
-- Indexes should hold support at 10,300-10,400 for the Dow, 1,160-1,170 for S&P, and 1,940 to 1,960 for Nasdaq.
-- "In sum, the door is still open for the Dow and the S&P 500 to challenge if not pierce their 2002-2005 bull market highs, which were established last month, Merrill wrote to clients.
There's little more to the report than what I have posted here, but I wish to point out that the analysts at Merrill Lynch failed to include the name of any one individual responsible for this "advisory." Other than pointing out the obvious - that stocks are off their highs and April is usually a good month - there's nothing to suggest that this be taken as anything more than wishful thinking and an outright slap in the face to Merrill Lynch's clientele.
With stocks down slightly over the first two trading days of April, this report looks suspiciously like pandering to investor greed while ignoring the fundamentals of the market. While April is chock-full of earnings reports from companies, Merrill fails to point out that many firms are up against solid numbers from 2004 and the chances for missing earnings targets are greater than in past quarters.
These unnamed analysts also are negligent in not warning investors that money is pouring out of stocks like crude oil from a ruptured pipeline. Taking that analogy a step further, high oil prices are dampening consumer demand and will likely be the cause of higher operating expenses (and lower profits) for many companies.
This kind of message is so utterly devoid of even a semblance of analytical process as to be contemptible. As this is only opinion, Merrill Lynch may be excused for making such banal, self-serving hypotheses, but their clients - if they follow the markets themselves at all - should pull every last dime of their money from their accounts as soon as possible. It is truly sickening to see a company, which used to base its business on integrity and trust, fall to the level of a common street pimp, and that is exactly what Merrill has done.
If, by the end of April, Merrill's forecast is not bourn out, and especially if the markets continue their relentless slide, what can we say then of their vaunted "analysis"?
Will we call them simply incompetent and blind to reality, or insist that they be called to account for what they really are, nothing more than overpaid con artists in a massive ponzi scheme?
As for today's markets, the morning witnessed more of the same for stocks - down in price. Oil shot up to over $58.00 a barrel before backing off to close at $57.00, still very high, with no end in sight. With oil's close and word from NY AG Elliot Spitzer that he would not likely pursue criminal charges against executives at AIG, the markets went on a tear to the upside, beginning around 1:30, which shows just how starved for good news investors are.
The rally took all of the major indices from red to green in the course of about 40 minutes, and they languished slightly to the upside for the rest of the day. The Dow was ahead by 16.84; the Nasdaq added 6.26, and the NYSE Composite tacked on a slim 1.17. Without any meaningful drivers in the way of economic news or earnings, that's all the markets could muster. The fact that they finished on a positive note at all must be reassuring to the bulls, who have been lambasted daily for the past four weeks.
Inside, the numbers revealed more of the prevailing downtrend. New lows outdid new highs on the Nasdaq by a wide margin, 135-42. On the NYSE, the new highs were barely ahead, 59-57. Similarly, Nasdaq's A/D line was negative, by about 17-14, while the NYSE put advancers ahead, 17-16. Trading was overall light, especially on the Nasdaq. More shares were traded on the NYSE for the 10th straight day. Bonds were relatively unmoved, the dollar gained while precious metals were pounded even further lower, with the exception of silver, which bucked the trend.
With little to go on except for gut feelings and analyst statements, the market could well slide around the flat line for the better part of the week or beyond. There are no meaningful economic reports due out and earnings reports won't begin in earnest until next week. The sleepy conditions manifested by today's volume may persist unless outside events cause movement, making this a good week for research and planning.
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