Another Rotation Monday
The end of the earnings season appears to be giving way to the portfolio adjustment process. Traders looking for opportunities must stay on top of this process of jumping in and out of sectors.
That said, the stock market environment is becoming increasingly favorable for bulls. We are probably entering a period of consolidation with an upside bias. However, if today's action is any indication for what lies ahead, we probably will not see the phenomenon of a "rising tide lifting all boats."
As for trading today, the Dow Jones Industrials (INDU) sputtered into the close and finished a once promising session with a loss of 75.08 and closed at 10,734.97. The NYSE saw decent volume of 1.22 billion shares. Winners did manage to outpace losers by a 17 to 14 margin. Helping to keep the INDU out of the black was General Electric (NYSE:GE), which fell $1.42 to $48.53, and Citicorp (NYSE:C), which lost $1.76 to $49.15.
Meanwhile, the NASDAQ (COMPX) was driven by a renewed interest for technology stocks and climbed 40.63 and closed at 2116.31. Volume crossed the 2 billion-share threshold while breadth was solid with 24 advancers for every 15 decliners.
Driving the NASDAQ (COMPX) were some old favorites. Cisco Systems (NASDAQ:CSCO) renewed its bounce with a gain of $1.38 to $16.98, JDS Uniphase (NASDAQ:JDSU) popped back up over $20.00 with a nice gain of $2.13 to $21.39, Juniper Networks (NASDAQ:JNPR) moved up $4.01 to $59.03 and Ciena (NASDAQ:CIEN) powered ahead by $4.77 to $55.06.
Another solid performer was Micromuse (NASDAQ:MUSE), a provider of software for the monitoring and management of information technology infrastructures. MUSE picked up $5.60 to $49.50. The stock has more than doubled from its low of $23.20, which was established less than a month ago.
The Splittrader.com list was relatively quiet today, though several of our stocks managed to keep their winning streaks alive by establishing new highs in the early going. Stocks establishing new highs include GTECH Holdings (NYSE:GTK), which gained $0.36 to $32.60, and H & R Block (NYSE:HRB), which moved up $0.40 to $55.00.
The bulk of today's sector gains were seen by the PHLX Semiconductor Index (SOX), which surged 20.05 to 662.65, and the Biotechnology Index (BTK), which gained of 23.18 to 568.04.
The rally in the biotechnology sector was fueled by a major takeover announcement. Aurora Biosciences (NASDAQ:ABSC) agreed to be acquired by Vertex (NASDAQ:VRTX). The terms of the deal call for Vertex to exchange 0.62 of its shares for each Aurora Biosciences share. ABSC saw a nice gain of $6.35 to $23.20 while VRTX pulled back $0.69 to $38.56.
The news after the market close has been mostly positive. Globespan (NASDAQ:GSPN) beat consensus earnings estimates by 2 pennies, reporting profits of 12 cents. GSPN, which closed at $22.00 during regular trading, is up more than two dollars in after hours trading. Caliper Technologies (NASDAQ:CALP), which manufactures chips for the pharmaceutical industry, reported solid profits of a $1.03 a share. Although CALP currently is not moving in after hours trading, it, nevertheless, closed the regular session with a gain of $1.37 to $23.00.
The B2B sector may get a boost tomorrow due to the unexpectedly good results from Netegrity (NASDAQ:NETE). The e-business solutions provider posted profits (yes profits) of 10 cents, which was a couple of pennies ahead of estimates. NETE closed the regular session up 99 cents to $39.99 and is trading a couple of dollars higher in after hours trading.
The clouds are parting and it is becoming clear that the major indices have made a major bottom. The Dow Jones Industrials (INDU) made a move to test the 11,000 resistance today. Unfortunately, vertigo gripped traders and the index quickly retreated. This is clearly a pattern that suggests that the average is going through a period of consolidation. Looking forward, the INDU needs to hold support of 10,666 or else we may see a test of the 10,400 support. A drop to the second level of support and a subsequent bounce may prove to be an excellent buying opportunity. The RSI is telling us that the INDU is a little overbought in the short term. A continued pullback may be necessary before the INDU can gather the strength to take out resistance.
The NASDAQ (COMPX) has a little more rally room than the INDU, so today's pattern may hold for the next couple of days. Look for the NASDAQ to test the 2250 resistance later this week. Additionally, the RSI still has room before an overbought condition is indicated, and the MACD is still rising nicely.
However, traders cannot expect the markets to simple roar right back into monster bull mode. It will likely take some time, perhaps another quarter or two, for huge money to pour into this market. This leaves us with the prospect of pouncing on sector rotations for our profits. These swings typically last two or three days, and traders have to be pretty nimble to profit from these moves.
Meanwhile, long-term investors can probably start determining which stocks to buy for their core holdings. The best companies in the market have probably achieved their lows and now could be a good time to start picking up some favorites for the long haul.
Good Luck! And may all of your trades be winning ones!