Dow 10,000 In Rearview Mirror
March 15th was the last trading day that we closed above the psychologically important 10,000 mark. With today's frisky advance through this benchmark, the question remains whether we can leave 10,000 in the rearview mirror for a while, or whether upcoming headline earnings will transform the 10,000 level back into the proverbial carrot for investors.
The NASDAQ also managed to add to yesterday's gains, with many of the indices' most humbled issues puffing their respective chests and doing their best impression of their former 1999-2000 selves. In fact, the best performing sectors on the day hold the unfortunate title of the worst performers for the past year. These sectors include the internet, fiber optic, networking and semiconductor sectors.
With the market now expecting horrible earnings for this quarter and with negative preannouncements at their highest levels since 1998, it will be interesting to see what the market will do in response to the parade of earnings that kicks off this week. Has the market been prepped enough to stomach the bad news and has the bad news already been priced into most issues?
If the bad news is baked in, we may see at least some stability come into the market, which would be welcomed indeed. In addition, stability would help most stocks build much-needed bases from which they can start the long trek higher through overhead resistance that has been building since last year in most cases.
Speaking of bad earnings news, Motorola (NYSE:MOT) reported a loss of $0.09/share for its first-quarter this evening, missing already downwardly revised estimates of negative $0.07/share. Many analysts were disappointed in the larger than expected loss because of the fact that Motorola had guided lower twice before the release. In addition, Motorola's key products of wireless handsets and chips saw decreasing order growth and accelerating negative operating margins. The stock was off about $1.00 in after hours trading after closing higher by $1.50 to $13.00 on the regular session.
We shall get a better read on the overall economy when General Electric (NYSE:GE) reports earnings on Thursday. Since GE is a very diversified company, any shortfall or conversely any windfall by GE will be a fairly good gauge as where we stand in regard to economic health. GE is widely expected to report earnings of $0.30/share before the bell.
In what can be attributed to more short covering, rotation out of bonds and probably some bargain hunting, the NASDAQ and DOW both powered higher. In addition, investors were soothed by news that the state of California would purchase the power lines of Edison International (NYSE:EIX) for $2.76 billion in order to keep the power concern out of bankruptcy. Although the deal is far from receiving clearance, it served to put a floor under energy stocks. EIX rallied $2.46, or 27.58%, to $11.38.
In an impressive move, the NASDAQ (COMPX) added 106.29, or 6.09%, to 1852.00. Volume was healthy, with 2.2 billion shares changing hands. Advancers beat decliners 2737 to 1161. Gains were widespread, however the tech big caps (or what used to be big caps) saw most of the buying interest.
And as mentioned, the DOW (INDU) shot past the 10,000 barrier in a bullish move that landed the average above its double bottom pivot point at 9992.50. More specifically, the DOW moved higher by 257.59, or 2.62%, to 10102.74. Helping to confirm the move higher was increased volume on the NYSE. A total of 1.3 billion shares were exchanged today, as opposed to only 987 million shares on Monday.
With investors again nibbling on stocks and with the lack of economic news to drive government debt prices, bonds retreated. The benchmark 10-year bond lost 1 4/32 to yield 5.08% and the 5- year note was down 17/32 to yield 4.64%.
Stocks and Sectors on the Move
Most all tech sectors were higher today but buying was most prevalent within the semiconductors, storage stocks and internet issues. Looking at a cross section of 5-minute charts within these sectors, it was easy to see that buying was fairly steady throughout the session. This may indicate that real buyers are coming into the market, as short covering is often punctuated by quick, violent moves higher.
Some movers on the day include EMC Corp. (NYSE:EMC) up $3.61 to $34.40, Texas Instruments (NYSE:TXN) up $2.09 to $29.60, Amazon (NASDAQ:AMZN) up $0.83 to $12.01, Network Appliance (NASDAQ:NTAP) up $2.33 to $15.68, Advanced Micro Devices (NYSE:AMD) up $1.62 to $21.32 and Purchase Pro (NASDAQ:PPRO) up $0.99 to $3.68.
Taking a backseat to the tremendous moves in the tech stocks lately have been some encouraging and not so encouraging moves in the cyclical stocks and the energy stocks respectively. The moves higher in cyclical stocks are essentially a vote by the market against a prolonged downturn since the success of these types of companies is directly correlated to upturns in the business cycle, even more so than other consumer driven companies.
Some winners in the cyclical group (CYC.X) include Alcoa (NYSE:AA) up $1.75 to a new 52-week high of $39.25, Minnesota Mining (NYSE:MMM) up $3.99 to $108.57, Ingersoll Rand (NYSE:IR) up $1.10 to $43.18 and Weyerhaeuser (NYSE:WY) up $3.03 to $52.46.
Conversely, the moves higher in oil and gas prices are serving to lift the already strong energy group, but more importantly are threatening to quell an already vulnerable consumer. Gas prices at the pumps are skyrocketing across the country. This is in anticipation of increased demand from the summer driving season in addition to worries over lower supply.
Higher energy prices infuse inflationary pressures on the consumer since most of these costs are unavoidable. Why does this matter? It matters because consistently higher energy prices may hinder the Fed from going "all the way" with a 50- basis point rate cut. As energy prices rise, manufacturers get to a point where they have to pass the added expense on to the consumer in the form of higher prices. This also commonly occurs in the airline business.
Higher prices and rate cuts are the witch's brew for inflation. Although economists have said that we have moved away from an inflationary environment for good, this is not a hypothesis that Greenspan wants to test.
Looking Forward, Always Forward
We spin the tech earnings wheel again tomorrow after the bell when Yahoo (NASDAQ:YHOO) releases its first-quarter results. The Street is expecting zero earnings out of the internet giant, or earnings of $0.00/share. After the Motorola report, we may need to buy a vowel, depending upon how the market reacts to MOT's report during tomorrow's session.
With the lack of economic news until Thursday's PPI and retail sales number, investors don't have a choice but to stew on the weak performances out of tech companies. Also, given the fact that we are going into a long weekend, traders may be hesitant to hold long positions through to Monday. Given these factors, I believe that the rest of this week will be biased to the downside, so plan your entries appropriately. In other words be choosy.