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Index Wrap

All The News That Isn't News, But Qualifies Anyway

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      10-23-2001          High     Low     Volume Advance/Decline
DJIA     9340.08 - 36.95  9439.21  9300.37 1.31 bln   1522/1591
NASDAQ   1704.44 -  3.64  1739.47  1695.22 1.82 bln   1679/1913
S&P 100   559.05 -  3.47   566.89   557.02   Totals   3201/3504
S&P 500  1084.78 -  5.12  1098.99  1081.53             
RUS 2000  427.37 -  3.13   431.99   427.35
DJ TRANS 2261.99 + 58.41  2289.20  2202.85
VIX        33.19 +  0.08    33.82    32.25 
VXN        63.73 -  3.63    67.03    63.18
TRIN        1.19 
Put/Call    0.50

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Americans love to be scared; or perhaps worried is a better description. And perhaps that is why stock prices are often fabled to "climb the wall of worry". Unfortunately for bulls, there was no wall-climbing today except in the early going. What caused the selloff late in the morning? Thank our local, national, and business news channels for delivering more anthrax news, as they aired with fanfare that two sick postal workers had died of the nasty stuff. While it is certainly unfortunate, it is not the cause of today's slide, but makes for a convenient rationalization of market movement and a tidy soundbite.

Tough as it is to sit idly by and not trade, it is no surprise to anybody that the current state of uncertainty borne of terrorist threats is making corporate profits harder to find. Nobody knows for sure in a quantifiable manner just how much or little profits will be affected or for how long. If this is not a breeding ground for fear and uncertainty, I don't know what is. Markets reflect that in true color and are behaving accordingly, as they chop their way in jagged stairstep form up the weekly chart - choppy because of uncertainty; up because of an inherent (unfounded too) bias. The markets certainly are not rising for fundamental reasons.

Interesting to note the Lucent LU reported crummier earnings than management had previously offered. However, if you can believe this, they kept guidance the same for 2002. With all due respect, they did not see the losses coming in the last 18 months as the sand shifted out from under them, nor did they foresee the loss reported today. What investor in his right mind would trust Lucent's 2002 guidance? Nobody reading this we hope. Be that as it may, it did not stop Salomon Smith Barney from upping its estimates on CSCO. Solly admits they may have taken them down too sharply following the NYC and DC attacks.

Exxon missed its earnings mark too but only gave up $0.25 in the process. Meanwhile, DCX and AWE had positive things to say on the coattails of better than foretold earnings.

As long as we are on the subject of earnings, let me avoid the charade by noting revenue declines instead of whether or not the following missed or "beat" their numbers. OPLK revenues fell 63% year over year (YoY). ACTL's fell 46% YoY. ACXM revenue fell 18% YoY. SSSW revenue fell 37%. DRTE revenue up 2% YoY. ONIS up 145%(!!) YoY, but down 41% sequentially. OAKT down 34% YoY. You get the picture. Revenues down bigtime so hitting your missing the actual earnings number carries little weight.

Let's throw AMZN and QLGC, the two everyone has been waiting for today, into the equation too. AMZN, ever the master of spin control, missed its own revenue targets this quarter by 10%, guided lower next quarter, and still insisted they would be profitable next quarter. I'm still trying to figure that one out, as apparently are others - the stock is down $0.55 or 6% in after hours trading. QLGC simply lowered its guidance and expects flat to single digit growth next quarter.

Finally sneaking in under the radar is CPQ, who missed estimates and guided lower. CPQ's problems are well-documented. No matter, it is HWP's problem now. CPQ lost about $0.30 in after hours trading.

In general corporate news, General Mills (GIS) has been given the green light to purchase Pillsbury from Diageo. However, the Justice Department has filed to stop General Dynamic's acquisition of Newport News.

All said, none of that really matters except to understand the current economic backdrop. What does matter to us traders are the charts, so let's get to them.

Dow Industrial chart (60/30):

Though we have not printed it here, the weekly chart is still in full bull mode and the daily has reversed its slide too such that the stochastics of both are now bullishly pointed up. Yet resistance remains firm at 9450, which has now been tested three times in the last three weeks. We focus tonight on the above 60/30 chart, which shows a bullish wedge formed by a series of higher lows and 9450 resistance. Stochastic has room to fall over the next session or so, but should find support around 9150 if the trend is remain intact. One of two things will likely happen here. The breakout over 9450 will be strong. If a breakout happens then fails, I'd favor failure with a strong put play.

NASDAQ 100 chart (NDX.X):

Similar story with the NASDAQ, which has performed surprisingly well given the lack of fundamental strength and lousy earnings. Even so, choppy weekly/daily charts are moving up indicating strength. While resistance is pretty good just over 1400, the cycling down of the 60/30 stochastics while price action holds up is pretty bullish. Once the 60/30 reaches oversold, a decent call play could emerge if all time-frame oscillators line up. 1300 looks like support right now. Note that the gap on the daily chart was filled last week.

S&P 500 chart (SPX):

For the Granddaddy of the indexes, which I think best represents the health of the market, we see 1100 as a stubborn point of resistance on the daily and weekly. One thing is for sure - whatever happens above of below that line is going to be strong be it a breakout or failed rally. That magic number held once again today as it turned back the bulls on the 60/30 charts. Even so, support on those time frames is rising indicating inherent strength in favor of the bulls. From my perspective, the 60/30 chart oscillators cycling down to oversold then emerging might make a good call opportunity with some strong upside for now. (Still waiting for MOAPO - see yesterday's Traders Corner).

VIX meanwhile has fallen back to support around 33 indicating there is still fear in the markets, but one of the lowest reading since the attacks. Fear is quietly declining, but so is price. That is something to keep an eye on. If fear and price are falling simultaneously, God help the bulls when real fear emerges to spike the VIX - bye, bye price gains.

Earnings are not likely to have any lasting impact on this twitchy trading environment. As soon as they are announced, price action twitches and all is forgotten the next day. The real price movement comes from events we cannot yet foresee. Meanwhile, economic news, with the exception of the Beige Book report due out tomorrow at 11:00 a.m., economic news is scarce. Earnings reports in the morning include Kodak, Goodyear, Honeywell, and Sears. Look for Chiron, EDS, and Foundry among the many reporting tomorrow afternoon.

Tomorrow looks like it has the making of a bullish trading day after some selling takes place. Wait for the oscillators to reverse from oversold at support and trade accordingly if the opportunity shows itself.

That's a Wrap! See you at the bell!

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