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MARKET > Commentary Tuesday, March 06, 2001
by: Craig Seidler
Assistant Editor

Baffling Bounce

Can I get a side of doubt with that rally? Rather than buy on the NASDAQ bounce today, many investors chose instead to sit back and do some head scratching, contemplating whether or not this was just another head fake, dead cat bounce, or sucker rally. No matter what you choose to call the bounce that we saw today, few can argue against the fact that an oversold rally was far overdue.

Today was the type of day on Wall Street that brought out prophets from both the bull and the bear camps. The bulls were of course trumpeting the fact that the semiconductor sector (SOX.X) was able to rally in the face of more bad news. After all, stocks rallying on bad news is a sure sign of a bottom, right? Well, nothing new here. We've all hear this reasoning from the bulls before, but nonetheless it was at least a hopeful sign that was indeed heartening enough to bring some of that sidelined cash back into the market.

The bears, on the other hand, were growling about the continued poor fundamentals and lack of visibility. They also argued that this rally was a combination of short covering and relief of a technically oversold condition in the market, especially the NASDAQ.

The big question is whether or not the NASDAQ can string together three up days in a row. Although not technically significant, a NASDAQ hat trick would go a long way towards restoring battered egos and may just serve to encourage a more believable upside move in the NASDAQ.

Today's Markets

Many a sector saw good buying interest today, which was a sign that new money was coming into the market, rather than the musical chairs, sector rotation that we have been witnessing for so long now.

The NASDAQ (COMPX) opened up 60 points today and put in what can be dubbed a "strong" session. That is until it proceeded to sell off into the close. The sell off was yet another sign that investors continue to sell into strength but we will take solace in the fact that the NASDAQ held onto most of its gains on the day. The index closed up 61.51, or 2.87%, finishing at 2204.43 on volume of 1.9 billion shares. Another good sign for the NASDAQ is that advancers trounced decliners 2303 to 1403.

Over in the DOW (INDU) things were not as exciting, with the average moving up 28.92 to 10591.22. Volume came in at 1 billion shares on the NYSE and advancers edged out decliners 1854 to 1193. The DOW suffered from a basic lack of buying interest in the tobaccos, drugs and financials. Phillip Morris (NYSE:MO) finished down $0.50 to $48.83, Merck (NYSE:MRK) dropped $2.08 to $77.45 and American Express (NYSE:AXP) lost $0.30 to $42.99.

Treasuries edged higher today, gaining a foothold after slipping for the past two sessions. The 10-year note closed up by 3/32 to yield 4.97% while the 30-year bond gained a mere 1/32 to yield 5.375%.

We also saw the release of the revised fourth-quarter productivity numbers this morning. Productivity was revised lower, from a rise of 2.4% to a rise of 2.2%. This may indicate that some companies had turned away from utilizing high tech solutions in order to preserve capital in light of the economic downturn.

Stocks and Sectors on the Move

As mentioned, the semiconductor stocks continued to dig themselves out of a hole despite sweeping downgrades across the sector. The chip sector (SOX.X) took revenue warnings from Xilinx (NASDAQ:XLNX) and Varian Semiconductor (NASDAQ:VSEA) in stride and coasted right through a profit shortfall warning from TriQuint Semiconductor (NASDAQ:TQNT). The SOX.X gained 33.92 on the day to close at 646.26, continuing to bounce off the December lows.

Some movers within the sector today include Intel (NASDAQ:INTC) up $1.13 to $31.50, Texas Instruments (NYSE:TXN) up $1.40 to $36.10, Xilinx (NASDAQ:XLNX) up $1.94 to $45.19 and KLA-Tencor (NASDAQ:KLAC) up $3.25 to $45.00.

Another sector that moved higher today despite bad news was the brokerage sector as measured by the AMEX Broker/Dealer Index (XBD.X). Salomon Smith Barney lowered its first-quarter estimates on Lehman Brothers (NYSE:LEH), Merrill Lynch (NYSE:MER) and Goldman Sachs (NYSE:GS), basing their decision upon a weak February for the firms. LEH gained $1.81 to $70.10, MER added $1.10 to $60.88 and GS popped $3.20 to $95.35. The XBD.X closed higher by 13.94 to 529.53 after finally finding support at the 510-level recently. Keep in mind; this index was at 650 just over a month ago.

Hardware stocks also kicked it into high gear today. The Hardware Index (XCI.X) vaulted 37.18, or 6.9%, to close at 867.09. Contributing to the bounce were shares of Dell Computer (NADSAQ:DELL), which rocketed $2.75 to %26.19, Compaq (NYSE:CPQ) which gained $2.10 to $22.17 and Apple Computer (NASDAQ:AAPL), which added $1.13 to $21.50.

Looking Forward, Always Forward

Wednesday we get the Consumer Credit number released at 3 p.m. ET. Investors will be looking to see that the consumer is still spending and not pulling a deer in the headlights due to the market being down so much. Economists expect consumer credit for February to come in at $5.3 billion.

While digging and sifting for signs of a turnaround, I noticed a positive divergence in the SOX.X and the COMPX. While the COMPX has been steadily making new lows, the semis have found support and have bounced higher. I have spoken in the past of the importance of the SOX.X as a leading indicator of the COMPX. The SOX.X was the first tech sector to recover at the market bottom of October of 1998 and the first to roll over in March of 2000.

The above chart shows a noticeable improvement in the SOX.X, whereas the COMPX below is obviously still struggling.

Although I am in no way convinced that we have seen a bottom in the NASDAQ, I do freely admit that more signs of a bottom are showing up each and every day that we spend time at these Death Valley-like levels. For example, the average investor is now looking to short stocks, the drugs are finally selling off when tech goes up and yields on the 30-year bond look like they have found support that dates back to late 1999.

Craig Seidler
Assistant Editor
www.SplitTrader.com

 


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