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Stocks having trouble holding gains

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As the trading session progresses, stocks look to be having some trouble holding gains. Earlier in the trading session, the Semiconductor Index (SOX.X) was showing a 2% gain at the 567 level, but has slipped back to trade 559.

The Networking Index (NWX.X) continues to have problems as it slipped to another 52-week low this morning and has traded as low as 287.77. Part of the worry here is what some analysts consider a "growing concern" for stocks like ExciteAtHome Corporation (NASDAQ:ATHM) not meeting listing requirements of the NASDAQ. Today's 33% decline to $0.56 came in part from Standard & Poor's downgrade of Excite's debt from "B-minus" to "CCC". Management has said it does not have enough cash to last the year.

There were many companies like ExciteAtHome (ATHM) that helped spur the networking boom in the late 1990's that are having financial problems, and that "lack of demand" for networking products (or the ability to pay for the products) continues to weigh on many networking stocks. Today's news from ATHM seems to have many networking stocks under selling pressure yet again.

While some networking companies seemingly boast about their making market share gains and capturing a larger portion of the pie, it has been my thought for sometime that the pie is getting smaller smaller. Late last summer and early fall I talked about how many of the "CLECs" (Common Local Exchange Carriers) like Convergent (NASDAQ:CONV) and ICG Communications (NASDAQ:ICGX) had been big buyers of networking products, but their financial condition and deteriorating technicals (their charts) were of concern for those companies that counted on the group for network hardware orders. Many CLECs are no longer around or have sought the protection of bankruptcy.

Bond YIELDs are higher today, but off their best levels of the session. The past couple of months and weeks have seen YIELDs driven lower as market participants bought the perceived safety of the US Treasury bonds. While some of today's selling is perhaps having stocks firm up, a trader looking to get bullish in stocks will need to see more than today's selling to think that a major rotation back into stocks is taking place. One bond YIELD I have an alert set on is the 30-year YIELD ($TYX.X) at the 5.475% level. This is approximately 61.8% retracement from the March low YIELD of 5.217% to the May 14th high YIELD of 5.866%. The 5.50% YIELD had been a base for the 30-year YIELD in July, but recent break below that YIELD level will most likely be a point of contention for a move higher. Should we see a YIELD move above the 5.5% level, then I begin to think that there is hope for a meaningful rotation back out of bonds and into stocks.

Jeff Bailey
Senior Market Technician

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