So Close And Yet So Far
The major averages managed to muster up a Friday rally, but they couldn't quite make it over key resistance levels. With a little help from the semis and a better than expected Friday employment report, the market slipped into the summer weekend on a positive note.
And who knows where we would have ended, given decent volume. Friday's NYSE volume qualified for the fifth slowest day all year. Nonetheless, the simple fact that we were able to turn an iffy open into a bullish close bodes well for next week's action.
It was probably the tame employment report that brought some sidelined cash back into the market on Friday, setting the table for what was a mildly encouraging close to a seesaw week. Nonfarm payroll fell by 19,000 versus consensus expectations for a drop of 25,000. In addition, the unemployment rate fell to 4.4% versus last month's reading of 4.5%. Separately, April's employment report, which originally was reported at 223,000, was revised down to 182,000.
Many economists saw the report as encouraging. On the one hand, it was still weak enough to keep the odds of another 25-basis point rate cut high. On the other hand, it shows an improving employment picture that doesn't support theories of a recession.
Meanwhile, the battered semiconductor index sprang to life on the heels of a positive announcement out of Novellus Systems (NASDAQ:NVLS). The chip firm said late Thursday that it was ready to stand by its $0.40 per share earnings estimate for its second quarter. In addition, Merrill Lynch upped its rating on the stock. NVLS closed higher by $2.50, or 5.22%, to $50.40.
Other semiconductor stocks joined NVLS in the plus column. Altera (NASDAQ:ALTR) added $1.11 to $25.11, Intel (NASDAQ:INTC) rose $1.73 to $28.74 and Applied Materials (NASDAQ:AMAT) hopped $1.39 to $51.32.
Software issues also helped prop up the NASDAQ, with Oracle (NASDAQ:ORCL) and Microsoft (NASDAQ:MSFT) posting gains of 3.66% and 1.68% respectively. Salomon Smith Barney put out a research note indicating that it believes that ORCL will hit its number for the fourth quarter. Question is, where was Solly three days ago when both these software behemoths were hitting the skids?
After an initial dip in the morning, buyers emerged to take the indices higher into the close.
The NASDAQ (COMPX) finished up 38.95, or 1.85%, to 2149.44. The tech heavy index gave up some gains last week, finishing lower by over 100 points. But, technically speaking, the NASDAQ did find good support at its 40-dma, which we will take as a good sign going forward.
The DOW (INDU) also set a course for higher ground. The old- economy index dusted itself off and gained 78.47, or 0.72%, to close at 10,990.41. Had the institutions been active in the last hour, we might have seen a more technically significant close over 11,000. But we'll take what we can get at this point in the game. NYSE volume came in at a paltry 1 billion shares and new highs continue to swamp new lows.
Treasurys put on some points in Friday's session, as a weak NAPM suggested that the manufacturing sector is still roiling in a recession. This, of course, suggests that further Fed cuts may still be near, which in turn coaxed some government debt buyers out of the woodwork. The benchmark 10-year note added 3/32 to yield 5.375% and the 30-year bond surged 21/32 to yield 5.705%.
Stocks and Sectors on the Move
The stock of the week was most definitely Sun Microsystems (NASDAQ:SUNW). It spoiled the tech party earlier in the week by saying that soft European and Asian demand for its products would cause it to miss earnings estimates. This was the kind of news that sellers can get behind. And sell they did. The tech troubles spilled over into old-economy stocks as well, sending the DOW down through support at 11,000 for the first time since 5/16. However, thanks to Friday's rally, the DOW closed the week down only 15 points.
Looking back on the week, you could almost feel the market sentiment shift, as the selling from the prior week spilled over into Monday's session. This had the short sellers licking their chops, as visions of another bear market rally started to become reality. However, no sooner did the pessimists get short than they had to start thinking about covering. This may have contributed in part to Thursday and Friday's rallies, although don't get too complacent because this tug of war is certainly not over. The shorts will no doubt reemerge at he first sign of weakness to add to the volatility that we have been living through for the last two weeks.
Speaking of the shorts, one battle that they have not been able to win lies within the gaming stocks. These lottery and casino stocks have been quietly advancing all year and cannot be knocked down. The only thing that I can figure is that the demand for these services must be inelastic. Folks are going to open their wallets and gamble even if they have to put it on a credit card I guess.
Some interesting gaming equipment stocks that look ready to breakout to new highs include Anchor Gaming (NASDAQ:SLOT) and International Game Technologies (NYSE:IGT). The latter actually broke out on Friday, but still looks like it has plenty of institutional support to power it higher.
On the casino side, Harrah's (NYSE:HET) and MGM Mirage (NYSE:MGG) both look ready to pop. They have been tracing cup and handle formations over the past few months and are now rest at the upper part of their handles.
The banks, as measured by the S&P Banks Index also look ready to head higher. Within this sector, even more cup and handle formations can be found, such as Splittrader split candidate Fifth Third Bancorp (NASDAQ:FITB). With every report that confirms that the Fed will continue cutting, the banks become more compelling. Golden West (NYSE:GDW) is another bank stock with a bullish chart formation. GDW is just about to breakout of a bullish ascending triangle that technically speaking, could take the stock to the $85-$90 level.
Looking Forward, Always Forward
Next week will be fairly light on the economic data. Therefore, preannouncements will continue to grab the spotlight, making for continued choppy trade.
Paramount on everyone's mind will be whether or not the DOW and the NASDAQ can make a push higher to get over key resistance levels. The 11,000-level on the DOW and the 2300-level on the NASDAQ remain the bogies for the bulls.
Turning to Splittrader plays, we have tightened up some stops to lock in some gains and are standing pat as far as new plays go, in order to getter a better read going into next week.
Get Out There and Enjoy the Great Outdoors