Stocks Make Hay On May Day
May Day has two traditions, one being the celebration of the first spring planting, the other being the unification of laborers around the world through rallies, speeches and riots. Both traditions were upheld today, as anti-capitalist protesters clashed with police in the streets of London and the U.S. stock market planted the seeds of hope for a summertime harvest of stock gains.
When Americans think of May Day, they usually think of dancing around a pole with colored ribbons. This tradition dates back to the 1700's when pagan revelers, unafraid of strict Catholic rules, donned masks and celebrated the springtime in the same fashion as our current day Halloween. In addition, they selected a May Queen and raised the May pole, around which single men and women danced with ribbon until they become entwined with their potential new love.
As we put April into the books, it seems as if investors are now dancing around the May pole with the financials, retailers and consumer stocks. These are the sectors that you like to see move in a recovery attempt. If we can also get the tech stocks moving in synch with the financials, the springtime love-fest will be complete.
Moving from matters of the heart to the economy, we received news from the National Association of Purchasing Mangers today. These are the folks in charge of ordering materials for production, so they are certainly connected to the pulse of manufacturing. They reported that the NAPM number came in at 43.2% for April, which was just shy of expectations of 43.8%. Readings over 50% indicate growth.
The good news, however, was that the April reading was a touch higher than March's figure of 43.1%. All the "cup is half full" analysts immediately called this a bottom in the manufacturing sector. While things are getting less bad, I don't think that this NAPM reading is reason to assume that the manufacturing sector is out of the woods just yet.
In addition to the NAPM reading, the employment index came in at 38.1% versus March's reading of 40.4% and the prices paid index fell to 48.9% versus 49.9% in March. Rounding out the readings from the manufacturing were inventory levels, which lucky for the bulls, are being worked down at a faster pace.
Giving a boost to the markets was an afternoon announcement that the Senate and the House had reached a tentative agreement on a $1.35 trillion tax cut plan that includes a $100 billion retroactive cut this year. This cut can only help the market as it puts money back into the hands of the consumer.
Turning to the NASDAQ (COMPX), after a slow start on the day, the tech heavy index rallied higher on the heels of a strong NYSE showing. The NASDAQ added 52.00, or 2.46%, to close at 2168.24. Volume was moderate, with 1.9 billion shares changing hands. New highs trounced new lows 131 to 28.
The DOW closed up 163.37, or 1.52%, to 10898.34, just off the high off the day. The DOW has been bumping its head on the 10900-level for the past two sessions, so we will see if this area proves to be resistance for the DOW going forward. Volume on the big board came in at 1.1 billion, which is on the slow side compared to recent sessions. New highs came in at 89 as opposed to new lows at 12. Market internals still continue to support a turnaround.
Bucking the recent trend, treasurys were actually higher today, even as equities mounted another rally. The 10-year bond closed up 11/32 to yield 5.29% and the 30-year note added 21/32 to yield 5.735%.
Stocks and Sectors on the Move
Putting a huge upside gap in its chart today was DOW stock Proctor & Gamble (NYSE:PG). After reporting earnings of $0.71/share, as opposed to estimates of $0.69/share, PG rocketed higher right out of the gate. The consumer staples stock ended the session up $4.13, or 6.88% to $64.18. The company put the icing on the cake by reiterating its sales growth going forward and was also on the receiving end of an upgrade by Salomon Smith Barney.
Internet stocks started May off with a bang today. The catalyst was Priceline.com (NASDAQ:PCLN), which rallied $1.74, or 35.88% to $6.59 after Goldman Sachs upped its rating on the internet play from a "market perform" to a "market outperform". In addition, the name-your-own price site posted a narrower than expected loss in the after hours session. The company posted a loss of $0.03/share as opposed to estimates of a loss of $0.05/share.
Other internet stocks that outperformed on the day included: Amazon (NASDAQ:AMZN) up $1.11 to $16.89, Yahoo! (NASDAQ:YHOO) up $2.13 to $22.31 and Ebay (NASDAQ:EBAY) up $3.83 to $54.31.
Telecommunications stocks also dialed up nice gains on the day. Mind you, these stocks are coming off lows not seen for two years in most cases.
The driving force today might have been the announcement of more job cuts. This time, it was Nextel Communications (NASDAQ:NXTL) that indicated it would be getting busy with the pink slips. The company said it would be cutting 5% of its work force. In addition, NXTL posted losses of $0.56, $0.05 worse than analysts estimates. Given all the news, the stock managed to close higher by $2.47 to $18.72.
Other telecom stocks that moved higher on the day were Worldcom (NASDAQ:WCOM) up $0.42 to $18.67, AT&T (NYSE:T) up $0.80 to $23.08 and Sprint (NYSE:FON) up $0.24 to $21.62.
Looking Forward, Always Forward
Well, no big economic reports until Friday's payroll's numbers. And with earnings reports largely in the rearview mirror, traders can focus on moves in specific stocks and sectors.
That being said, having our eyes glued to charts all day does two things for us at Splittrader. One, it makes us blind as a bat and two; it keeps us in tune to the "big-picture" supply and demand of stock. From our recent observations (through thick glasses) we are seeing more buying on the dips across a wide variety of sectors. This has been most noticeable around midday, which is significant because in general, most institutions actively trade at the open and at the close. This tells us that it is the retail investor that has got up the gumption to come in and scoop up stock as it is falling during the day. This is not the type of price action that you see in a bear market.
We are also keeping our eyes on the Biotech Sector as measured by the AMEX Biotech Index (BTK.X). This index has finally managed to hurdle its long-term downtrend line that dates back to November of 2000.
Therefore, don't be surprised if you find some biotech plays on our Current Play list before you find straight tech. We have been using a top down approach when picking stocks, making sure that the overall sector is healthy first and foremost before the health of individual stocks within that sector are considered.
If the sector is rising, the chances that individual stocks within that sector will hold up at support levels are much better. This keeps our risk parameters in check, while increasing our chances of seeing some gains soon after a stock is picked. This ultimately gives us the initial wiggle room we need to raise our stops and lock in gains.
Happy Trading and Keep Your Stops In Place