NASDAQ Strings Together Four
On the day before Good Friday, the market could do no wrong. Despite a plethora of bad economic news and warnings out of some key players, the market surged ahead to post healthy gains. What makes this move even more impressive is the fact that traders were willing to go long into a holiday weekend. In addition, we have not seen four up days in a row from the NASDAQ since last Labor Day.
The market had some hurdles to leap right from the get go today. Retail sales figures came out before the bell and echoed what investors have been afraid of; namely that the consumer has sewn up their wallets and stayed home. It looks like the wrath of corporate layoffs and the stock market decline has finally gotten to the almighty U.S. spender.
Specifically, retail sales in March fell 0.2% after being unchanged in February. And with retail sales representing approximately one third of total demand in the economy, you'd think the market (especially the recent market) would head for the bunkers on this type of news. Nope. Nothing could stop the bull-train today, not on Good Thursday.
Besides the poor retail sales number, you had the 800 pound gorilla of retail and DOW stock, Wal-Mart (NYSE:WMT) come out and said that it would not meet its projected first quarter EPS figure of $0.35/share. This was of course due to the effects of poor weather on sales (a favorite excuse of retailers). But again, the market didn't want to muddy the holiday weekend, so WMT, after losing almost $3.00 in the early going, came back to close down only $0.53 at $49.70.
Rounding out the poor economic news, the Michigan consumer sentiment index came out at 87.8, which was below estimates and well below March's figure of 91.5. In addition, the PPI (producer price index) showed that inflation remains a bit of a worry. The core PPI number, which excludes food and energy, edged up 0.1% in March.
So you can see, the fact that the market was up today was no small feat. Explanations abounded as to why we saw so much strength today. There were rumors swirling that institutions were putting cash to work and that the shorts (hedge funds in particular) were not only covering but were going net long for the first time in a while.
Things are so bad now that they are good. This is the new mantra on the Street and it seems to be a good marketing ploy because buyers have appeared out of the woodwork. I personally believe that this is a poor reason to go long, but if enough stocks rally on bad news then the lemmings will follow and stocks will go higher.
The NASDAQ (COMPX) ended up 62.48, or 3.29%, to 1961.43 on lighter volume of 1.9 billion shares. The lighter volume was no surprise, as traders took off early for the holiday weekend. What was a surprise was the broad based buying across most all tech sectors for the fourth day in a row and the 14% gain for the week.
The DOW (INDU) added 113.47, or 1.13% on volume of 1 billion shares. Drug stocks rallied right along side tech stocks, which in general is a good sign of buying as opposed to just sector rotation. Recently, when the techs have rallied, the drugs have floundered as traders simply rotate money instead of infusing new capital into the market.
Treasurys continued to trade in response to the equity market. To that end, it was a turbulent session in the bond pits, with the 10-year ending off 11/32 to yield 5.17% and the 30-year note adding 3/32 to yield 5.61%.
Stocks and Sectors on the Move
Since we saw strength and resilience across most all sectors today, focusing on particular stocks will give us a better idea as to what was going on behind the scenes and maybe what to expect for next week.
Bucking the strength seen in techs stocks on Thursday were shares of EMC Corp. (NYSE:EMC). The data storage company said that it would miss first quarter earnings for the first time in five years due to the economic slowdown. EMC said earnings of $0.18/share are more realistic than previous estimates of $0.20/share expected by analysts. In response to this news, EMC fell $0.95 to $31.26.
Returning to the surprising turnaround in retail stocks, Sears (NYSE:S) got to see the softer side of Wall Street after investors rallied the stock $0.10 to $34.75 following news of a drop in sales and an earnings shortfall. Sears reported that same-store sales fell 5.3% and that it now sees first-quarter earnings at $0.53/share as opposed to the expected $0.57/share.
Joining Sears in reporting horrible sales was women's clothier Talbots (NYSE:TLB), which indicated that sales for March had slipped a whopping 8.1%. The difference with TLB, however, was that investors were not able to bring Talbots back from the grasp of sellers. TLB plummeted $3.70 on the day to close at $37.00 on almost three times normal volume.
In yet another show of brazen bullishness Nortel (NYSE:NT) and Lucent (NYSE:LU) both rallied off a CS First Boston cropping of revenue estimates for 2001. NT added $2.12, or 14.64%, to $16.60 and Lucent rose by $0.15, or 2.06%, to $7.43 after CSFB sited a weak capital spending market going forward for the fiber optic duo.
Turning to Splittrader.com plays, I have to toot the horn on two plays that have worked out well for us recently. Equitable Resources (NYSE:EQT) has been on a tear and has established a near parabolic up trend that appears to still have good strength. Also, Performance Food Group (NASDAQ:PFGC) just announced a split (we were in it before the announcement) and looks like it is finally ready to break resistance at $55.00. If it can break $55, it would complete a triple bottom bullish break that would ideally have the stock running higher into its payable date of 4/30/01.
Looking Forward, Always Forward
After the Easter ham has digested and all the eggs have been found this weekend, we can look forward to the CPI (consumer price index) number come Tuesday. This inflation gauge is widely expected to rise 0.20% and 0.20% at the core, which would indicate inflation is still tame.
The real test starting next week, however, will be to see if buyers reappear en masse. Also I'd like to see more widespread buying instead of past rally attempts where one sector suffers at the expense of another.
With many companies reporting earnings next week, the real key will be to see if stocks can hold up in the face of widely expected dismal quarterly results. If stocks can merely tread water after these dismal results, I believe that buyers will put sidelined cash to work. Ironically, treading water may be exactly what the doctor ordered, especially in the NASDAQ as shown below.
So bottom line is that the market is starting to rally on bad news again. While its nice to finally write some kind words about the market, lets not forget from where it is the market rallied and why it rallied. Even though we are heading into springtime, not everything on Wall Street is blooming. All I'm saying is continue to tread lightly until more nagging questions are worked out and we have a better technical reading on stocks in general. This means support levels are holding and bullish breakouts are not getting whacked back into their bases.
I hope all of you have a good holiday weekend. Lets just hope that the Easter bunny sticks around next week because for this market to move higher it will most certainly need to pull a rabbit out its hat.
Because of Good Friday and Easter, this will be the last newsletter delivered until Monday, which is why we have included our weekend sections.