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Practical Advice From Dad Goes Unheeded

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         7-12-2001        High      Low     Volume Advance/Decline
DJIA    10480.41 +237.97 10496.64 10269.31 1.38 bln   1944/1166	
NASDAQ   2075.62 +103.70  2080.13  2031.84 1.85 bln   2510/1203
S&P 100   622.60 + 15.45   623.72   607.01   totals   4454/2369
S&P 500  1208.39 + 27.96  1210.25  1180.18             
RUS 2000  488.78 + 13.21   489.12   475.83
DJ TRANS 2901.65 + 82.55  2902.72  2822.95 
VIX        24.52 -  2.46    26.17    24.42 
Put/Call Ratio      0.51

Practical Advice From Dad Goes Unheeded
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"Finish what you start". That makes sense, does it not? It should, for it is part of the building block of good charter that our parents tried to instill in us. It is the foundation of perseverance and tenacity, two essential ingredients for success in any worthwhile endeavor in life.

Why do I bring this up? Merely to point out that market is apparently lacking in character and has a bad habit lately of not following through on its early indications.

To wit: Today the market started with a bang on IBM's "good" earnings news last night (Why anyone would think that, I will never know since competitors of IBM in every category have been warning with gusto. But that is for another column), and Nokia (NOK) announced earnings that beat the street, the latter of which offered a bullish ray of hope as wireless carriers are poised to roll out 3G starting now. Unfortunately for the early-morning jubilant bulls, the market did a big fade for the rest of the trading day, but closed off its lows thanks to thin-volumed, last 20-minute recovery.

Furthermore, yesterday offered similar action, but in reverse, as markets gapped down only to recover near the close. A similar pattern precede it on Tuesday as the early morning fade turned into a rally as investors simply ignored hard economic facts that the economy is declining still.

That is three days in a where the equity markets have not finished what they started. If this continues tomorrow, look for an early move down followed by a recovery later in the session.

Perhaps, but we have earnings and economic news to consider too. Let us start with economic news. First, unemployment claims came in over 400K again and offers proof that layoffs are still happening. Consumers cannot buoy the economy for long with rising unemployment. Second, the trade balance fell suggesting that the dollar is weakening against other currencies, thus making our stuff more affordable to other countries. That is a double-edged sword though, it means their stuff becomes less affordable to us and we slow our spending further. Third, the Index of Leading Indicators was up for the third month in a row. Great!. . .until we consider that it remains historically unreliable. Finally, the Philadelphia Fed Index fell substantially more than expected, further bolstering the case that this is not a bottom at least in that region anyway.

I hate to be a killjoy, but that is reality.

As for earnings news, investors wanted desperately to be bullish into the close. Though the prices on the major indexes were rising, little conviction existed without volume to back up the move. The expectation was born of great anticipation of SUNW and MSFT earnings. In short, SUNW beat the number by a penny, earning $0.04 and reported at the high end of revenues. It immediately jumped up $0.80 in after hours trading, but has since given all but a quarter back as I write this at 5:52 pm. Just as they got to the part in the conference call about offering no guidance for next quarter, MSFT announced earnings of a whole penny (right on target!) and guided next quarter estimates down. Why the disappointment? MSFT noted that business is likely to decline further before recovering in 2002.

EBAY was the lone bright spot and not only beat the estimates by a longshot, it guided numbers UP for next quarter. Accordingly, it gained about $2.50 after hours from its close.

Alas, that is not enough to save the markets from the ravages of Gateway (GTW) miss, nor from the disappointments and failure to provide much guidance at NT, TMTA, CMRC, AKAM, CNXT, and PMCS. In fact, NT does not see growth until at least the second half of 2002. There are more but you get the point.

Are the technicals any different? Let us take a peek.

Dow Industrial chart (INDU:

The Dow has been rising, albeit in agony, on the weekly and daily charts. The weekly stochastic is showing signs of bullish promise, but the daily is nearing a top. What is more, that top appears to be right at previous resistance just over 10,600. While the Dow has gradually moved up over the descending trendline for the past 5 days, it has formed a little bear flag in the process, better seen on the 60-min chart. The 60/30 stochastics have already reversed, and early action tomorrow (earnings aftermath) should keep the index and the oscillators moving south.

NASDAQ 100 chart (NDX):

Major indecision characterizes the NASDAQ 100 as evidenced by the doji today. Investors simply cannot make up their minds. As frequently stated on this site, NASDAQ is no longer the leader of the major indexes and should willingly follow the SPX. Besides, nothing in these charts shows any strength. In fact, they show weakness in their stochastic oscillators. Looks like puts were the right way to go. For the gamblers who held puts through the close (yours truly included), tech earnings tonight (see above) should carry the NDX lower in the early going, but a lot can change overnight.

S&P 500 chart (SPX):

The SPX too struggles for gains and cannot find any in the end. The descending trend line held as resistance and the long wick on today's candle showed that higher prices could not hold. While the pattern is a little harder to discern, a bear flag is forming on the daily chart, but the stochastic has yet to enter overbought. Bears take heart. The reversal south on the 60/30 oscillators suggest that more downside is to come, especially after earnings reports that are failing to inspire bulls, at least for very long. In short, temporary weakness. Once over, SPX will be free to rise in agony too.

As for the VIX, it is starting to show investor nervousness. Today's VIX fell in the early going, then began to rise, indicating put buying or call selling on ATM OEX strikes. All this in conjunction with a sagging market correlating. However, it is still stuck in no man's land and truly helpful right now.

So for tomorrow? Wish we knew for sure. If we did, we would charge $10,000 per month for the subscription and it would be worth every penny. Alas, while we do not always get it right, earnings outlooks and lack of guidance are likely to weigh heavily at least in technology issues during the early going. I see no evidence other than the patterns of the last 3 days that suggest a reason for a rebound later in the day. There is no economic news to get in the way either. In short, this has not been the earnings season bulls hoped for. Daimler/ Chrysler (DCX), Ericsson (ERICY), Merck (MRK) and Gillette (G) all report tomorrow. MRK is the only one in the Dow. There are unlikely to be any surprises here though. The fact still remains that South American woes have not mysteriously vaporized and traders may want to go home flat.

See you at the bell.

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